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What are the differences between an FHA home loan and a conventional loan?
When you are looking at the different loans available to purchase or refinance, it can be confusing. Over the past year there have been many changes in the underwriting guidelines for all mortgages. FHA has become a very popular choice for many home buyers. Lets take a look at the basic differences between an FHA loan and a conventional loan.
FHA stands for Federal Housing Administration. FHA insures loans that are made by approved FHA lenders, they do not lend directly to borrowers. FHA provides lenders with insurance in case a borrower defaults on their loan.
Fannie Mae and Freddie Mac are government sponsored enterprises (GSE). Their mission is to provide stability and liquidity to the U.S housing and mortgage markets. These GSEs also do not lend directly to borrowers, but they help to ensure that the banks and mortgage companies have funds to lend at affordable rates. These types of loans are typically conventional loans.
The FHA underwriting guidelines are generally more liberal than on a conventional loan. The minimum down payment required by FHA is 3.5%. All of the down payment can be a gift from a family member. The seller is allowed to pay up to 6% of the purchase price towards the buyers closing costs. To be eligible for the 6% from the seller, it must be negotiated in the purchase contract. The minimum credit score that most lenders will allow on an FHA loan is 580.
At this time, the minimum down payment on a conventional loan is 5% – 10%. Due to the lack of private mortgage insurance available, most lenders are requiring that the borrower have a minimum credit score of 720 for a loan to value of 90% – 95%. The seller can pay up to 3% of the purchase price toward the buyers closing costs. However, they can only pay the non-recurring costs. They are not allowed to pay the recurring costs such as taxes, insurance or pre-paid interest. On an FHA loan, they can pay both recurring and non-recurring costs.
One of the other benefits of an FHA loan is that they will allow a non-occupant co-borrower to co-sign on the loan. The income of both the borrower and co-borrower will be combined and used for qualifying. On a conventional loan, the owner occupant must qualify at 35%/43% ratios unless higher ratios are approved by the Automated Underwriting System.
Another difference between conventional and FHA loans is regarding private mortgage insurance. FHA mortgage insurance is required on all 30 year FHA home loans regardless of the loan to value. FHA has a monthly mortgage insurance premium and an upfront mortgage insurance premium. Even though it is called an upfront mortgage insurance premium, it is usually financed into the new loan. On average, the upfront premium is 1.75% of the loan amount. Once you have paid on the monthly mortgage insurance premium for a minimum of 5 years and the loan to value is 78% or below, you can get rid of the monthly mortgage insurance. Speak to your current lender for requirements to remove the PMI.
Conventional home loans also require private mortgage insurance; however, they only have a monthly mortgage insurance premium. They do not require the upfront MIP. Also, conventional loans usually only require mortgage insurance on loan to values that are over 80%. You can have the mortgage insurance removed from your conventional loan once you have paid for 5 years and the loan to value is 80% or below. Check with your current lender for specific documentation needed to have your PMI insurance removed.
Above is just a few of the differences between conventional and FHA home loans. For more information or to contact me directly, please visit
Debt Relief-The Many Benefits That Would Ensure A Peaceful Life
There are certain responsibilities in life, which one can carry on without any hassle. Then there are responsibilities that take the shape of a burden as they are not only tough, but they are almost next to impossible to fulfill. A debt is not that big a problem if its manageable, but when the finances are low, theres nothing more agonizing that a debt. The worst part about debts is that unlike any other pain, they tend to hurt more with every passing day. A debt Relief is always welcome in those cases.
The Most Important Benefit of Debt Relief: Brings Down Your Monthly Budget to a Manageable Level
The main and perhaps the most important hassle that stops one to pay debts regularly, is a limited monthly income. In times of economic slowdowns, when the inflow of monthly incomes doesnt have a certainty, one large debt on the shoulder is like five of them. In such a situation, a relief from the debt injects a fresh leash of energy in the lives of people.
The Second Most Important Benefit of Debt Relief: Helps You Save Money For Other Important Priorities
Month after month of paying huge debts with exorbitant interest rates doesnt allow people to divert their money on any kind of savings for the future. So, on one hand where debts start accumulating, on the other hand, owing to lack of any kind of buffer money, the future becomes extremely uncertain. In such cases, a relief from the debt helps people to divert their money towards more meaningful avenues.
The Third Most Important Benefit of Debt Relief: It Improves the Credit rating by Removing All Past Records
In a world where almost all the financial agencies and organizations are connected, one debt unpaid equals to five unpaid debts. The reason behind this is, incapability of paying a debt reflects very badly in your credit rating. Other financial organizations judge people based on that rating and hence their reputation suffers to a great extent. In such cases, a relief from any such debt not only helps people financially, but also clears any past record of bad debt and improves the vital credit rating.
The Fourth Most Important Benefit of Debt Relief: It Provides People the Much Needed Peace of mind
The burden of a enormous debt on any shoulder is equivalent to sleepless nights and restless mind. There have been instances where people have resorted to various illegal and unethical jobs just to earn some extra money to pay their debts. If such debts are pardoned, it not only helps people, but in a way helps the society to certain extent.
To conclude, pardoning debts may not always be the best option for a government or any financial organization. It costs them a lot if considered in monetary terms. Nevertheless, if one takes into consideration the social benefits, relieving people from debts is a blessing in disguise. It not only gives people a new hope, but also helps them to start their lives in a whole new way.