FHA vs Conventional – Which Mortgage Is Best?

Today were going to talk about the difference between FHA loans and conventional loans and what it means for you.


Today were going to talk about the difference between FHA loans and conventional loans and what it means for you as a homebuyer and we’re getting started it right now! (INTRO) Hey what’s going on I’m Emmett Dempsey
mortgage advisor with Geneva Financial here in beautiful Port St Lucie, Florida
and welcome to another mortgage and home buying tip. If this is your first time here
and you want to learn more about mortgages or the home buying process in
general, go and subscribe to my channel and ring that bell so you don’t miss
anything OK FHA loans versus conventional loans definitely a question I get asked every day those are two is some of the most
frequent loans that we do here just just in this country so what’s loan is right
for you so the answer to that question like a lot of questions know you ask is
it depends depends on your personal goals so there’s no one-size-fits-all
for everything that’s why it’s important to have a mortgage planning meeting with
me to know exactly what your goals are to see what’s best for you
FHA and conventional they each have pluses and minuses I’m going to go over
them right now let’s go and start the FHA loan first the good parts about the
FHA loan they allow lower FICO scores some as low as 500 most lenders will go
down to 580 I know we do 580 s are minimum FICO but some will go didn’t go
below that with 10% down low downpayment only my three and a half percent down
there that you have to pay FHA requires that you make a three and a
half percent down payment so if you are you’re buying a house you can have your
your buyer’s agent ask the seller for some seller concession this help pay
your closing costs and all your pains your three and a half percent down
payment that’s what I was recommend they allow higher debt to income limits
basically debt to income is a percentage of your gross income
roughly usually the maximum is a fifty percent of your gross income so if you
make ten thousand a month the maximum for your new mortgage payment HOA all
your debts can be is five thousand so it’s basically divided by 2 whereas FHA
will allow you to go over that 50 percent mmmm I’ve done some FHA loans as
high as you know 50 to 55 with compensating factors and I got an
approval so if they tell you is the only one that allows that besides the VA most
the lower rates FHA loans are insured by by the
housing and urban development they’re insured by the government so since
they’re insured against default of course the lenders all allow a lower
interest rate basically it’s an exchange of risk based on you as a taxpayer but
all it’s spread all over it all the taxpayers so therefore interest rate on
FHA loans are lower the fruit for that okay so some of the bad things about FHA
first uh it’s got a funding fee 1.75 percent of the purchase price and you
can finance that you know and most of them do but it’s 1.75 percent so there’s
a base loan and then there’s a gross loan that gross loan is 1.75 percent
that gets added on top so that it’s that funding fee that’s your your total loan
amount most of mortgage insurance its point
eighty five percent of the loan amount and that’s on there forever no matter
what your loan to value is so even if you make a large payment you know even
right after closing you still have that mortgage insurance on that loan for the
life of the loan so a lot of folks don’t know that it’s kind of going back and
forth so you well and unless you’re you’re putting down a take that back if
you’re putting down at least 5% you it comes off in 11 years but generally you
know even 11 years is a long time that most people will stay in the house but
that mortgage insurance is not loan-to-value dependent it depends how
much you put down also the property requirements FHA has certain property
requirements it’s not as extensive as some people think it’s really just a
head and shoulders inspection inside the attic but it can’t be a fixer-upper so
unless you go a different FHA loan as an FHA 203k you know but go ahead and do
your research on that on that loan as well 2 or 3 K is a renovation loan if
you do want to buy fixer-upper but do buying a standard standalone house you
have to have some property requirements that need to be fixed before closing ok
so let’s talk about the conventional loan you know conventional loans are
Fannie Mae Freddie Mac you might have heard those terms those are the two
government-sponsored entities who buy these mortgages and conventional loans
are not generally insured by the government so the rates are higher so
that’s definitely a negative there credit sensitive so you could have much
better credit on a conventional loan than doing an FHA loan so that it’s got
620 minimum so it’s got to have a 620 you can do as little 3% down on
conventional you don’t need 20% down so that’s kind of a good thing
3% down if you’re a first-time homebuyer unless you go the atheneum a home ready
loan or Freddie Mac home possible you can give me a call if you want you talk
about those in further detail they’re definitely great loan programs the
debt-to-income on a conventional that’s generally a 50% hard max and then even
going about 45 you got to have some compensating factors like some assets
after closing and call reserves yes so the debt-to-income is very sensitive so
conventional loans you gentleman I’ve have had pretty good credit history it
was some assets possibly after closing and then you to do all that so but but a
good thing is that the property requirement so if you do want to buy a
house that’s maybe not perfect I buying with a conventional loan is it’s
definitely good you might see some listings with cash a conventional that’s
conventional financing appraisals and not as stringent as an FHA appraisal is
now one big thing I want to say to the end is student loans you know there’s a
you know over one trillion dollars in this country in student loans FHA and
conventional loans handle things differently on student loans resident
Fage a say if you have twenty thousand dollars in student loans and then your
payment is income based you know say it’s maybe even zero on your credit
report or even it’s $100 I have to use a 1% payment and so on on a twenty
thousand dollar suit alone I get to use two hundred dollars no matter what my
and for some people it can help them fall out of qualification because I have
to use the 1% figure no matter what if you’re in if you’re in an income based
repayment if your deferred if your deferred I have to add a 1 percent
payment anyway but if your income based repayment plan that I have to use 1
percent no matter what conventional loans however if your if your payment
says zero income based repayment plan I can use zero so I can use so that helps
people qualify so that’s one good thing about conventional that they’ve changed
our guidelines on student loans you know as opposed to have 8 a loans so as
always you know which one you go with personal situation so give me a call go
to Dempsey mortgage comm for your free to rate quote and more explaining
session I’ll go over the FHA versus conventional on a on a mortgage coach
and I’ll go ahead and provide a mortgage cote CA and the show notes down below so
go ahead and check that out thank you so and as always if you want to learn more
about mortgages of the home buying process in general go and subscribe to
my channel ring that bell so you don’t miss anything thank you so much for
watching and I’ll see you on the next one

2 thoughts on “FHA vs Conventional – Which Mortgage Is Best?”

  1. Thanks for watching! FHA vs Conventional is a common question, and the best choice is as unique as you are. Give me a call if you're looking to buy or refinance!

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