There is a lesser known conventional loan program that allows a 3% down payment. This program is fantastic for home buyers that do not have the 5% down payment of a normal conventional loan. But there also some other great examples where this loan could help home buyers, here are just a few of them:
1. Can not get a 2nd FHA loan- If you already own a home and have a FHA loan, you most likely can not get a 2nd fha loan. Except in a few small examples(job transfer, etc). This program could allow you to buy another house and still have a low down payment.
2. A Larger Home- FHA loans in the Houston Texas area are limited to $272,550. But conventional loans can go up to loan amount of $417k and still offer the 3% down payment.
3. FHA’s Mortgage Insurance Changes- FHA recently changed their rules on when the monthly mortgage insurance goes away. If you get a FHA loan with a 3.5% down payment(30yr mortgage), the monthly mortgage insurance stays on the loan for as long as you have the loan. On conventional loans the mortgage insurance goes away as soon as you hit roughly 78% loan to value(22% equity). Another great benefit to this loan.
4. Ignoring the Spouse’s debts- FHA loans require that the spouse’s debts be counted in the debt to income ratio. Even if the spouse is not on the loan. In some examples this maybe too much in debts to qualify for a mortgage. But on conventional loans if the spouse is not on the loan, you do not have to count the spouse’s debts(bills). Which could allow the couple to buy a home when they normally could not.
5. There is not the 1.75% FHA Fee- FHA loans have an Up Front Mortgage Insurance fee of 1.75%, conventional loans do not. Saving you money.
While there are many benefits to this loan vs a FHA loan, it does not mean that FHA loans are bad. Conventional loans require a higher credit score vs FHA loans(down to 580). And conventional loans with a 3% down payment limit the seller to paying only 3% in closing costs. FHA allows the seller to pay up to 6%. When getting a mortgage it is important to do your research on which loan is best for you in the long term and short term.
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