What’s Better Fha Or Conventional?

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,101
181
63
San Diego, California
www.loansreduced.com
FHA and Conventional loans both have their perks however when deciding which loan is best suited for you and your family it’s wise to understand the differences between the programs and which is best. I received a phone call from a borrower today that initially inquired about an FHA loan with Quicken and was recently told that he would have to put 20% down in order to qualify. Now at the time this homeowner (we will call him Bill) was clueless as to why they were requiring 20% down. Bill then found our forum LoanSafe.org where we have hundreds of thousands of homeowners going through similar situations and decided to give me a call. I asked Bill “Why are they requiring you to put 20% down?” he said “I honestly have no idea”.

This is very common when it comes to working with Quicken Loans and internet chop shop lenders, they don’t explain things to homeowners which is why it’s smart to work with a qualified, seasoned loan officer who understands your goals, needs and wants.

I proceeded to call the Quicken loan officer with Bill on the phone and he became very defensive right off the bat when I was only trying to help Bill. Maybe the loan officer thought that I was trying to steal his deal when in reality I was just trying to understand the situation to offer my advice to Bill. The answer I received from him was “Sorry, he has to put 20% down to qualify that’s all I know” – what does he mean by this, there has to be a reason! I kept digging and unfortunately without pulling Bills credit and understanding his scenario I wouldn’t know why they are requiring this.

After pulling Bills credit he had a 760 credit score, great income and no prior derogatory events on his credit.

Now the question came into play of – why is this loan officer even offering FHA to this very qualified buyer?

Let’s dive into the differences between the programs:

Conventional:
  • 3% down payment is possible, 5% for higher income individuals. Many new homebuyers believe that you must have 20% down to qualify for conventional, this is NOT the case.
  • Credit above 700 you will typically see a larger benefit by going conventional than FHA
  • Mortgage Insurance can be removed from a Conventional loan, with FHA in most cases it will remain on the loan for the entire term.
  • With 20% down on conventional there is NO mortgage insurance applied
  • Seasoning of prior derogatory events have a longer waiting period with conventional than they do FHA. If you have a prior foreclosure, short sale, bankruptcy you can qualify for a new loan sooner with FHA than you can with conventional.
  • Conventional interest rates tend to be slightly higher than FHA, however when you combine them with the mortgage insurance that FHA has, FHA usually will end up being a higher mortgage payment monthly for higher credit individuals.

FHA:
  • 3.5% down payment required, unless qualifying for a BOND program/Down Payment Assistance
  • Credit scores below 700 will typically be more beneficial to go FHA, I have provided an analysis of the two programs here based on a 660 FICO: FHA vs Conventional (CLICK ON TOTAL COST ANALYSIS BELOW)
  • Higher debt-to-income ratio limits allowed with FHA, meaning you can potentially qualify for more house or just qualify in general.
  • FHA mortgage insurance is typically lower than conventional
  • Credit score requirements can go as low as 580 however most lenders require 620

CLICK HERE TO VIEW TOTAL COST ANALYSIS OF FHA VS CONVENTIONAL

Big thing to remember when viewing this total cost analysis is that the payments on each scenario are almost exactly the same. With Conventional you are able to remove the mortgage insurance after 2 years of having the loan which would result in a savings of 275.00 per month on the conventional loan product. Conventional in this circumstance would be better for borrower in the long-term.

This is just breaking the ice when it comes to the differences of the two programs, there are many other reasons why you may need to go FHA vs Conventional or vice-versa.

What program is best for you? Find out now: [email protected] or 619-379-8999.
 

Christopher Haner

LoanSafe Member
Sep 6, 2017
14
1
3
As I am not a person with high income, for me Conventional loan is better. Thanks for all the above information. I think this would be helpful for them also who are planning to take a loan in future.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,101
181
63
San Diego, California
www.loansreduced.com
Thanks Christopher! Yes if you typically have a FICO greater than 680, conventional is usually the direction to take even when going for the lower down payment direction. I see many brokers push people into FHA loans because they are more profitable for the company. As a matter of fact I just funded one for one of our original loansafe members that their brother was saying they had to go FHA. 20 days after they reached out to me we were closing on their new home with conventional financing and they are extremely happy campers. It pays in the long run to work with someone trustworthy and who looks out for your best interests.