Conventional loans have tougher lending criteria than FHA mortgage loans. For example, to qualify for a conventional mortgage loan, you need higher credit scores than FHA mortgage loans. Most conventional loans have caps on their debt to income ratios at 45%. Most conventional mortgage loan programs require that collections be paid off prior to funding the loan. Conventional loans do not allow non-occupied co-borrowers. One great thing about conventional loans is that if you put 20% down payment, there is no mortgage insurance requirement whereas with FHA insured mortgage loans, mortgage insurance premium is a requirement throughout the life of the loan. There are no upfront mortgage insurance premium with conventional loans and the private mortgage insurance premium is substantially less than the standard 1.35% annual FHA mortgage insurance premium.
Down Payment On Home Purchase
There are two different types of minimum down payment conventional mortgage loan programs. The 3% minimum down payment conventional mortgage loan program requires the conventional mortgage loan borrower to have a minimum FICO credit score of 680. The 5% minimum down payment conventional mortgage loan program requires the conventional mortgage loan borrower to have a minimum credit score of 640 FICO. There are conventional mortgage loans available for conventional mortgage loan borrowers with lower credit scores. Conventional mortgage loans are credit score sensitive. The lower your credit scores, the higher your mortgage rate adjustments will be and will get stuck with a much higher interest rate. The waiting period restrictions after filing bankruptcy and/or having a foreclosure is much longer for conventional mortgage loans than it is for FHA mortgage loan programs.
Cases Where FHA Mortgage Loan Program Is The Only Option For Premier Credit Mortgage Loan Borrowers
Even if you have stellar credit scores and perfect credit, there are times where the FHA mortgage loan program is your only option in order to get a deal done. Remember that FHA mortgage loan is for those who are owner occupants and are not allowed for second homes or investment homes. One example where the FHA mortgage loan program is your only option is if your debt to income ratios exceed the conforming conventional debt to income ratio caps. Most conventional loan debt to income ratios are capped between 40% and 45%. For FHA mortgage loan program, debt to income ratios can be capped at 56.9% by a FHA mortgage lender who has no debt to income ratio overlays. If a home buyer has perfect credit but debt ratios exceed the conventional mortgage loan limit, they would have no other choice but to go with the FHA mortgage loan program.
Two or more units
Any owner occupied property under 4 units is considered residential property. Minimum down payment for a single family home for a conventional loan is 3% or 5%. However, any residential property of 2 units or more, the minimum down payment for a conventional loan jumps to 15% or more. For FHA mortgage loan program, the minimum down payment remains at 3.5% for units of 2 to 4 units. Although the conventional mortgage loan borrower might qualify for a single family home, they will not qualify for a multi-unit residential property without putting down the required 15% or more down payment. FHA mortgage loan program is the only option to go in the event if the home buyer is limited with their down payment and cannot put down 15% or more. With FHA mortgage loan program, a 3.5% down payment will be sufficient.