The following is courtesy of Michael Lamborn, Mortgage Adviser, Coldwell Banker Home loans.
You know that the down payment is frequently the biggest hurdle for many potential homebuyers – especially millennials – to clear, both in terms of dollar amount and credit score requirements. Buyers looking for a low down payment option have often relied on the U.S. Department of Housing and Urban Development's (HUD) FHA-insured loans that can offer down payments as low as 3.5%. Now, though, buyers have another option – one that allows them to put as little as 3% down.
At the end of 2014, Fannie Mae began accepting conventional mortgages with the more attractive 3% terms. However, it is important for buyers to understand the differences (aside from the 0.5% variation in down payment requirements) between the two programs before deciding on which is best for them. Let's look at the most important differences in terms of short- and long-term costs.
Credit score
A buyer must have a credit score of 500 or higher to qualify for an FHA loan, while a conventional loan requires a minimum credit score of 620. FHA loans can offer more flexibility with credit guidelines – your buyers can get additional insight and detail by speaking with their Loan Officer.
Closing costs
An FHA loan will allow the seller to contribute up to 6% of closing costs, while a conventional loan only allows up to 3% if the minimum down payment requirements are utilized. This can be a considerable benefit for buyers looking to reduce the financial impact of the home purchase.
Mortgage insurance - Very Important!
While the credit requirement is typically higher on conventional mortgages, it brings into play a difference between the two programs in terms of mortgage insurance.
On an FHA loan, the mortgage insurance is a static figure – in January, the FHA reduced the mortgage insurance on 30-year fixed loans from 1.35% to 0.85%. The buyer pays .85% of the loan amount up front at the time of closing – it is added to the principal balance – and then .85% is paid in annual premiums over the life of the loan.
For an FHA loan, the insurance rate remains the same throughout the life of the loan and doesn't disappear until the ratio reaches 78%. However, for a conventional loan, private mortgage insurance goes away when the loan-to-value ratio (the price of the loan versus the value of the house) hits 80%.
Just like the house you are looking to buy, the mortgage program you choose must be the one that feels and fits right in your current financial situation and with future objectives. Call me and I am happy to connect you with helpful and friendly mortgage advisers who will customize their advice for YOU!
CNN article on the announcement.
Bela Vora, REALTOR®,
Coldwell Banker Preferred - Exton Real Estate.
Office: 610 363 6006; Cell: (484) 947 3127
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One comment, Michael Lamborn is the worst "mortgage advisor" possible. I had to use quotation marks, because I can't even believe he calls himself that. Do yourself a favor, and if you are considering doing business with this guy, go find a professional instead. I don't even have the time and energy any more to explain why, because I spent all of my time and energy moving my mortgage to someone reputable.
ReplyDeleteSorry to hear that your experience with Michael was not good. There are ties when he has helped saved the day for me and y colleagues by making 10 and 14 day settlements happen!
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