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Can someone explain the pros and cons of each loan type (FHA, conventional, non-conforming, etc) First time homebuyer here.

by faith926 from Oceanside, California. Mar 10th 2016 Reply


Jesse Stroup (jessestroup)
#196 ranked lender in California - 589 contributions

All the loan types offer benifits, it's more based on the credit scores and money. Most will think that the PMI (Private Mortgage Insurance) is the (Con) of the loan. With conventional loans if you put less then 20% down you will need to have PMI. Now, there are ways around the PMI like, a second mortgage loan or using a lender paid mortgage insurance program. With FHA loan you have PMI on the loan. Now the PMI will differ from a bigger down payment or a shorter loan term like a 15 year loan. I hope this helps, Jesse Stroup www.jessestroup.com 510-704-3445NMLS#6229

Mar 10th 2016
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William J Acres (William_Acres)
#2 ranked lender in Arizona - 7,782 contributions

When you contact a lender, they will analyze your complete loan profile and make a determination based on your credit history and scores, as well as your down payment and all other aspects of your scenario, and from that info, they will advise you as to which loan product they believe is right for YOU.. But in general, "Conforming" loans are basically FHA, VA, USDA and Conventional. Each one of these lending programs have a "Conforming" set of minimum guidelines which must be met in order to obtain financing.. Additionally, each lender offering these loan products can have their own guidelines above what conforming guidelines call for.. it's these "overlays" that make lending different, one lender to another.. FHA allows for low down payment (3.5%), and there's little difference in the interest rate when compared to borrowers with high credit scores vs. low scores.. there is a difference, but its minor.. Also, all FHA loans charge an upfront 1.75% mortgage insurance premium paid to HUD (it can be financed), and in most cases, you will have monthly MI for the life of the loan.. the only way to remove it would be to refinance into a "non" FHA loan., VA does 100% financing, but is only available to current and retired US military with active benefits. With VA there is no monthly MI, but there is an upfront MI which varies based on your military service. Conventional financing requires a minimum of 3% down for first time home buyers, and a minimum of 5% down for all other applicants. If you put 20% or more down, you will not have to pay monthly mortgage insurance (MI). Unlike FHA, if you have poor credit scores, not only will the interest rate be higher, but the monthly MI premium will also be higher.. USDA is only available in USDA defined areas and is 100% financing. There is an upfront charge like VA & FHA, and there is also a monthly MI charge, but it's less than FHA.. Non-Conforming loans have many names (portfolio loans, hard money, private money, agency retained, jumbo, etc..) these are all examples of "non-conforming" loans. Basically, these types of financing has rules and underwriting requirements that will be different one lender to another because there is no "Conforming" set of guidelines.. hence the name "Non-Conforming".. Obviously, there's much more to each of these loan types, and I could write a novel explaining the pro's and con's.. So I suggest you contact a LOCAL mortgage broker and apply with them. Once they see your complete loan profile, they will be better equipped to advise you properly. They can also do side by side comparisons based on your specific scenario and will be able to explain the pro's and con's of each.. Let me caution you though.. you should be speaking to a mortgage broker.. not a bank.. typically, bank loan officers are more like clerks than loan officers. they take your application, but have limited training on determining the right loan for each borrowers individual circumstances.. Also, by applying with your LOCAL Broker, you have an advantage because he's familiar with local customs and works with many lenders with each one offering a different type of lending program. This is unlike the local bank which typically only has a few lending programs. The more lenders, the more lending options, and the more likely your scenario will be accepted.. Plus, the broker is experienced in seeking out the best loan terms for your particular scenario, and he has lower overhead which typically results in lower rates and fees than most of the larger lenders.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com NMLS# 226347

Mar 10th 2016
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Richard Reslow (richardreslow@gmail.com)
#1185 ranked lender in California - 1 contribution

Hi there. First off, congrats on your decision to become a proud homeowner. The difference is based on many factors. Although FHA requires as little as 3.5% down, I can show you how to possibly purchase with zero out of pocket. Shoot me an email and i will help you. RichardReslow@gmail.com 858-722-9497

Mar 10th 2016
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Larry Gray (lgray_312_247)
#5 ranked lender in California - 1,127 contributions

You have received excellent responses thus far to you question. I have to go along with William Acres, once again, to declare a knowledgeable mortgage broker/banker would be happy to address the differences in your particular situation. I still do a lot of FHA loans because of minimal down payment and being forgiving of some challenging past credit issues as long as you are on track to better credit. Sometimes, the 3.5% down on a high balance loan (i.e. $625,500)is the lowest cost option in a home purchase in a larger than usual conforming loan.However, in qualifying for a 3% down conventional loan under $417,000 you want to compare side by side with mortgage insurance and rate to decide which is better.Often the FHA will be the lower rate but on the other hand the conventional loan can be appealing for the fact that you can eliminate mortgage insurance eventually without refinancing. Getting the loan with lender paid mortgage insurance requiresgood to excellent credit.If you qualify in the region you would be looking for down payment/closing cost assistance then that tosses in another factor. However, I do those loans with FHA and conventional. Any further questions please visit my profile.

Mar 10th 2016
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