Conventional Loans Versus FHA Loans

Conventional Loans and FHA Loans are both mortgage loan programs for one to four unit properties, however, FHA Loans are for only owner occupied properties only. Conventional Loans can be used for owner occupied properties, second homes, and investment homes. Conventional Loan Requirements are much more tougher than FHA Loan Requirements.  FHA Loans are not just for home buyers with bad credit. Mortgage loan borrowers with excellent credit may need to go with FHA Loans many times due to the more lax FHA mortgage lending standards compared to Conventional Loans.

Credit And Conventional Loans: Fixing Your Credit To Qualify For Conventional Loan

Conventional Loans have higher credit standards than FHA Loans. Minimum credit scores to qualify for conventional loans is 620 FICO credit scores compared to 580 FICO credit scores for FHA Loans. Debt to income ratio caps on conventional loans are 45% debt to income ratios whereas FHA has debt to income ratio caps at 56.9%. Deferred student loans that are deferred for at least 12 months are exempt from debt to income calculations with FHA Loans whereas with conventional loans, deferred student loans do not count. There is a four waiting period after a bankruptcy discharged date to qualify for a conventional loan where with FHA Loans, the waiting period is only two years from the discharged date of the bankruptcy to qualify for a FHA Loan. There is a three year waiting period after the recorded date of foreclosure to qualify for a FHA Loan where there is a seven year waiting period after the recorded date of a foreclosure to qualify for a conventional loan. There is a three year waiting period to qualify for a FHA Loan after a deed in lieu of foreclosure and/or short sale where the waiting period is four years after a deed in lieu of foreclosure and/or short sale to qualify for a conventional loan.

Cases Where Conventional Loans Is Only Option

FHA Loans, VA Loans, USDA Loans are only for owner occupant properties only. With Conventional Loans, you can purchase owner occupant properties, second homes, and investment properties. If you were to purchase a second home, FHA Loans, VA Loans, USDA Loans do not qualify. You can only qualify second homes and investment properties with conventional loans. However, conventional loans have tougher credit standards than government loans ( FHA Loans, VA Loans, USDA Loans ) and mortgage loan borrowers with bad credit may need fixing your credit to qualify for conventional loan. Minimum credit scores required to qualify for conventional loans is 620 FICO where with FHA Loans, all you need is a 580 FICO credit scores.

Tips In Fixing Your Credit To Qualify For Conventional Loan

If you credit scores fall below 620 FICO credit scores, fixing your credit to qualify for conventional loan may be your only option. There may be some quick fixes to boost your credit scores. If you have credit cards with high credit card balances, just by paying down your credit card balance to at least 20% of your credit card limit may boost your credit scores drastically. If you have little or no active credit tradelines, you may try adding yourself as an authorized user to a family member’s credit card account. This needs to be well thought out. The main credit card holder needs to have perfect credit payment history and needs to have a very low credit card balance. By adding yourself as authorized user to a family member’s credit card account you have instant credit tradelines.  You can also get three to five secured credit cards with at least $500 credit limit. Each one of those secured credit cards can boost your credit scores by at least 10 to 20 points and your credit scores will keep on going up as your credit cards ages with timely credit payment history. Do not apply for unsecured credit cards unless your credit scores are at least 700 FICO.

If you need to qualify for a conventional loan with lower credit scores or need help in fixing your credit to qualify for conventional loan, please contact me at 262-716-8151 or email me at gcho@gustancho.com. We are available 7 days a week, late evenings, weekends, and holidays as well to answer all of your mortgage questions and help you get a pre-approval.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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