Real Estate
October 14, 2019
link to facebook link to twitter
More Stories
What to expect in today’s loan process? How to use rental income to qualify for a mortgage How to plan the optimal time to buy a rental property The loan process and what not to do Why waiting for mortgage rates to get better is a losing proposition A factor that can drive your mortgage cost up How child support and alimony can affect your ability to get a mortgage What to look for when getting a mortgage on a manufactured home Why getting a 30-year fixed-rate mortgage is a smart financial move How to lower your cash to close when buying a home What you need to know about securing a VA mortgage How mortgage lender credits work Five quirky refinance scenarios that work Two mortgage loan programs get a better interest rate The #1 mistake consumers make when getting a mortgage… Things that affect your first-time buyer mortgage options Be wary about paying off this type of mortgage Best benefit for your first-time home buyer Why the VA mortgage is the best home loan A bank statement program might help get a mortgage Read the fine print Cash-out refinance or home equity Should you refinance with today’s mortgage rates? Should you buy and build or buy a single family home? Don’t make mistakes when getting a mortgage refinance Home value when refinancing Mortgage rate sounds too good to be true Finances matter when buying a home FHA requirement might hurt buying chances How to get a mortgage without providing tax returns The new way to get a mortgage with 1 year income tax returns Four common home buying mistakes to avoid How to create wealth with your income and finances Should you buy a house with monthly mortgage insurance? 2019 conforming loan limits rise FHA loan limits for 2019 increase Working two jobs makes now easier to get a mortgage How much of your mortgage income should be going towards an auto loan? How much are closing costs when you purchase a house? Self-employed income Common questions on financed mortgaged insurance loans A loan program you may be eligible for based on your credit score Can you use roommate income to get a mortgage? Pulling credit may not make sense Cash to payment formula when buying a home Lender knows how to purchase business? Be careful getting a mortgage if you have a bankruptcy How expensive your mortgage will be due to bad credit? A non-traditional program for self-employed mortgage borrowers What you need to know about the mortgage 4506-t document Two mortgage process problems you will want to avoid How the mortgage process gets ugly if you have a difficult picture Could the 30-year fixed mortgage get to 3 percent? Purchase price should not be most important factor Three reasons you should not buy a home Three quirky issues that will hurt your mortgage Why your mortgage payment keeps changing The credit score it takes to get a mortgage How 1031 tax-deferred exchanges work Six to avoid when purchasing a home Mortgage inquiry makes your credit score drop? Transfer property to family and be protected under Prop 13

Should you go FHA or conventional for purchasing your first home?

By: Scott Sheldon
August 9, 2019

Buying your first home should be handled with extreme care including selecting which mortgage loan program makes the most financial sense. Following is what you ought to consider when looking at both mortgage loan programs …

Loans backed by Fannie Mae and Freddie Mac are conventional loans which require a minimum down payment of 5 percent if your loan amount exceeds the conforming loan limit $484,350 in the area in which you’re looking to purchase a home. If you’re looking to purchase a home within the conforming loan limit the minimum down payment you would need is 3 percent. Conventional loans may contain monthly PMI if you’re working with less than 10 percent down.

FHA Loans are insured by the Federal Housing Administration. The FHA insures the loan in the event you default on the mortgage. FHA Loans typically have better interest rates associated with them than conventional loans but can otherwise be slightly pricier due to the upfront mortgage insurance premium (ufmip for short) and the additional annual mortgage insurance premium on a monthly basis.

So, should you go FHA or conventional? Consider the following possibilities when deciding what makes the most sense…

If you have some credit issues going FHA especially if you’re working with 3.5 percent down is almost always a better bet. The rates are lower than conventional and they’re much less expensive in terms of loan costs.

If the property is a condominium this might be more geared towards conventional as FHA requires special approval.

If your credit is at least a 700-credit score or more and you could go FHA with 3.5 percent down or conventional with 5 percent down all things being equal, with a good sound financial profile both local programs mirror each other.

Some oddball scenarios to consider.

If you pay alimony it comes off income regardless if you’re going conventional loan or FHA. This gives you more borrowing power because it comes off income it’s not counted as a debt.

If you’re looking at a manufactured home, it is almost always it’s better to go FHA with a than conventional as it’s more likely to pass automated underwriting. However, if you have 20 percent down and you have good credit, at least a 700-credit score or better a conventional loan would be a better bet. If your credit score is less than 700 and you have less than 20 percent down to work with and you’re looking at a true or manufactured home FHA is it better in most cases.

Conventional loans allow a debt to income ratio of up to 50 percent whereas FHA loans will go up to 55 percent if your credit score is in the mid 600s for example.

Ultimately at the end of the day you want a lender willing to lay out both options for you and explain the pros and cons of each so you can decide what ultimately makes the most sense for you and your family.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.