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William J. Acres

Shoud I use Conventional Financing or FHA

Monday, August 12, 2013 - Article by: William J. Acres - LendUS - Message

Many folks are confused when it comes to loan options.. if you talk to a loan officer in one of the large "Big Bank Institutions", you might come away even more confused.. Most larger institutions do not have "Loan Officers" who are qualified to give accurate loan advice and consultation. Instead, they are merely application takers, and don't have the proper training to consult you accurately. So for this reason I say "Always use a Mortgage Broker".. They are licensed, educated and experienced in looking at your complete scenario and deciphering which loan product will best suit your particular situation.

When it comes to the difference between FHA financing and Conventional financing.. here are some key points to consider.

1.FHA charges 1.75% upfront (which can be financed) on every transaction
2.FHA charges Monthly Mortgage Insurance of 1.35% annual (divided by 12 monthly payments) if you go 30 years and put the minimum down payment of 3.5%
3.FHA MI is for the life of the loan, and can only be removed if you refinance out of FHA financing or you pay off your mortgage
4.FHA does not have a minimum credit score requirement, however if your score is below 580, you will need to put 10% down payment.
5.With FHA, there is little difference in the interest rate from borrowers with 640 score to borrowers with a 740 score.
6.FHA rates are usually a little lower than conventional financing rates.
7.Although FHA does not have a minimum credit score, understand that FHA does not lend money.. they only insure loans against default. The lenders.. or those with the $$, will often times have their own set of guidelines called "Overlays".. it's the lenders overlays which will have a minimum credit score.. for most FHA lenders they want to see 640 or above

1.No upfront MI charge
2.Monthly MI is lower
3.MI can be avoided when the borrower puts 20% or more as down payment
4.Conventional MI is not for the life of the loan. It will drop off when you have paid down your mortgage to 78% of the original mortgage balance
5.With Conventional, if you have paid MI for at least 2 years, and if your home's value has increased to where you have at least 20%, you can have the home appraised and petition to have the MI removed.
6.Most conventional lenders require a 660 minimum credit score.
7.There can be a big difference in interest rates from 660 borrowers compared to 750 borrowers. If you have the higher credit scores, your rate can be about the same as FHA financing.. if your scores are lower, you might pay a little higher than FHA, however with the lower MI, you would still have a lower payment with conventional financing.

Although this is a summary of some of the key differences between FHA and Conventional financing, there could be other considerations which will make one loan product more beneficial to you than the other.. This is why I say you should use a "Local" mortgage broker rather than a big bank. By applying with your LOCAL Broker, you have an advantage because he's familiar with local customs and works with numerous lenders, seeking out the best loan terms for your particular scenario. Because he has lower overhead, he can offer you lower rates and lower 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. 480-287-5714

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