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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
Utility Of Bad Credit Personal Loans
A bad credit loan will offer you credit but charge you a higher rate of interest and usually offer you a much lower amount than otherwise available. This is done to protect the lender from the increased risk that you might not be able to pay back the debt. Once you acquire a bad credit loan you can use it to start rebuilding your credit history.
Types of bad credit loans: There are generally two types of bad credit loans, which includes bad credit secured loans and bad credit unsecured loans.
Bad credit secured loans usually involves a possession of significant value, most likely your house, as a collateral for the loan. The loan size is determined by the value of the possession, monthly income and past history. For a person with bad credit history, this is the easiest type of loan to obtain due to the increased security a lender has in the value of your possessions.
Bad credit unsecured loans are difficult to obtain because of the higher risk a lender would be taking on. These loans come with much higher interest rates and much shorter terms.
Millions of people have bad credit history and many more are joining the rank everyday. Getting personal loans from traditional sources such as banks are harder than ever. But there are various financial establishments that offer loans to people with a bad credit history. Now applying for bad credit loans requires some forethought. As you shop around for the best bad credit loan deals, you need to weigh your options carefully.
Before applying for a personal loan to repair your bad credit, it is essential to understand the nature of personal loans. Unlike home loans or auto loans, personal loans are unsecured, meaning you are offering no collateral to secure the loan. That makes the loan inherently risky.
In order to determine whether you can qualify for bad credit loans, it is necessary to fill out an application form first. Typical personal loans applications request your name, social security number, income and other relevant financial information. A loan officer must determine your credit worthiness, even in the face of your bad credit history.
The application process for personal loans is usually relatively quick. Another advantage is that it does not require a formal closing. The application process consists of a written application, a promissory note and a payment schedule. As a result, there is less paperwork and hassle involved in obtaining a personal loan. With a personal loan, you may not have to undergo a credit check. Once you are done with required paperwork, the money will be deposited within 24 hours into your checking account.
With such a loan you may be able to defer payments for a short span of time. The terms of these loans may also be quite generous, allowing you to make payments over a period as long as 84 months. You can use such a loan to consolidate debt, pay education expenses or pay for home improvement costs.