FHA vs. CONVENTIONAL
Down Payment Minimum 3.5% Minimum 10% or more
Closing Cost Low, regulated by HUD Unknown/Vary greatly
Qualifying? Can qualify after 2 years Can qualify after 2 years
Qualifying? Can qualify after 3 years Generally after 5 years
Insurance Low cost Ranges from low to high cost
FHA VS CONVENTIONAL LOANS
FHA loans tend to have many different advantages over conventional loans, such as lower down payments and there are more relaxed credit- qualifying guidelines. The FHA loan was created by the federal government to encourage homeownership throughout the United States. The FHA will help buyers to obtain a loan with little or even no down payment. The FHA does not lend the funds to the buyer, but insures the loan to limit the risk to the lender.
BENEFITS OF A FHA MORTGAGE
- A 3.5% down payment vs a 5% down payment on traditional loans
- Low monthly Mortgage Insurance
- Low closing costs, regulated by HUD
- No credit score requirement
- Qualify for a loan two years after bankruptcy
- Qualify for a loan three years after a foreclosure
The FHA loan guidelines are generally more relaxed than conventional loan guidelines; including less strict regulations about past bankruptcies and/or foreclosures, job requirements, use of alternative credit, and debt-to-income ratios. The FHA ensures that their interest rates stay competitive with conventional loans interest rates.
FHA home loans were originally created for first time home buyers. However people who are not first time home buyers may qualify for an FHA home loan, but the FHA does not allow anyone to have more than one FHA- insured loan at a time.
The borrower is required to pay a one-time Up Front Mortgage Insurance Premium at closing. This Up Front Mortgage Insurance can be financed into the loan amount directly. The borrower will also be required to pay a monthly Mortgage Insurance Premium, which is .5% of the total loan amount divided equally over 12 months. The FHA will require a termite report and clearance, as well as a few other property condition standards to qualify for the loan.
A borrower may refinance a conventional loan to a FHA loan. Your options will include: Cash-out Refinancing, Rate Refinancing or Term Refinancing. The FHA offers borrowers the option to consolidate two mortgages in to one FHA mortgage, and debt-consolidation programs. The benefits of the FHA loan, such as the low closing cost and the relax credit and income qualifications also are applied to FHA Refinances. The only type of refinancing that is required to have a previous FHA- insured loan is a FHA Streamline Refinance.