FHA Loan Versus Conventional Loan
Many people think that FHA Loans are mortgage loans for home buyers with bad credit, low credit scores, or other credit issues. This may be true but it is not always the case. There are cases where home buyers with excellent credit and income choose FHA Loan Versus Conventional Loan Programs, which we will cover on later paragraphs of this mortgage blog. Some home buyers who qualify for conventional loans choose FHA Loans instead because FHA offers better terms on the particular property purchase and/or refinance mortgage program. Depending on the mortgage loan borrower’s situation, FHA Loan Versus Conventional Loan may or may not have its benefits. Some home buyers do not have any other choice but to go with a FHA Loan while others can only go with a conventional loan and do not qualify for FHA Loan.
Cases Where Home Buyer Does Not Qualify For FHA Loan But Qualify For Conventional Loan
There are new Fannie Mae Mortgage Lending Guidelines that went into effect last August 2014 with regards to mortgage part of bankruptcy. If you had a mortgage part of your bankruptcy, new Fannie Mae Guidelines state that the waiting period of the foreclosure starts from the discharged date of the Chapter 7 Bankruptcy even though the foreclosure was not finalized and transferred out of the homeowners name into the name of the mortgage lender. The deed can be transferred out of the homeowners name into the mortgage lender’s name after the discharged date of the Chapter 7 Bankruptcy at a later date. Regardless, the waiting period for the foreclosure waiting period starts from the discharged date of the bankruptcy. There is a four year waiting period to qualify for a conventional loan if you had a mortgage part of your bankruptcy to qualify for a conventional loan. With FHA Loans, it is different. There is a three year waiting period from the recorded date of the foreclosure. The recorded date is the date when the deed was transferred out of the mortgage loan borrower’s name into the name of the mortgage lender and/or date of the sheriff’s sale.
Benefits Of FHA Loan Versus Conventional Loan On Multi Unit Properties
If you are purchasing a two unit building or multi unit property ( up to 4 units are considered residential properties ), a great benefit with FHA Loan Versus Conventional Loan is that you only need to put down 3.5% down payment with FHA Loans on any properties that is one to four units. With conventional loans it is different. If you were to purchase a two unit property via conventional loan route, you would need to put down at least 15% down payment.
Disadvantages Of FHA Loan Versus Conventional Loan Programs
One of the major disadvantages with FHA Loan Versus Conventional Loan Programs is that with FHA Loans, there is an upfront FHA mortgage insurance premium and an annual FHA mortgage insurance premium for the life of the FHA Loan no matter what the homeowner’s loan to value is. With conventional loans, there is no upfront private mortgage insurance but there is private mortgage insurance if the homeowner has less than 20% equity in their home. Private mortgage insurance is much cheaper than FHA mortgage insurance premium and private mortgage insurance can be canceled once the homeowner has at least 20% equity in their home.
Cash-Out Refinance Mortgage On FHA Loan Versus Conventional Loan
One advantage with cash-out refinance mortgage loans is that FHA will allow up to 85% loan to value on a cash-out refinance mortgage loan whereas with conventional loans, the maximum loan to value on a cash-out refinance mortgage is 80% loan to value. That extra 5% cash-out may be extremely important to some homeowners.