Conventional 97% purchase programs can be attractive alternatives to the 96.5% LTV FHA purchase loan. There are distinctions between the features of these two mortgage programs that a home buyer should consider when considering a mortgage for a home purchase.
Interest Rate:
Typically FHA will have a lower interest rate. For higher credit scores the interest rate difference is less. For lower credit scores the interest rate difference can be significant.
Mortgage Insurance
Generally, FHA can have higher monthly mortgage insurance, depending on buyer credit scores. FHA also has an upfront funding fee that is typically added to the loan amount. Additionally, at present, FHA mortgage insurance does not cancel at any loan to value ratio. It remains throughout the life of the loan.
Conventional mortgage insurance varies with credit score. For higher credit scores, the mortgage insurance can be lower than with FHA. For lower credit scores, conventional mortgage insurance can be higher than FHA monthly mortgage insurance.
Maximum loan amount:
In Chattanooga and Hamilton County and the surrounding TN and GA counties, the FHA loan limit is $271,050. A purchase requiring a higher loan amount, up to $417,000, would need to be a conventional.
Funds for closing:
FHA allows seller contribution to buyer closing costs up to 6% of the sales price. The Conventional Home Possible Advantage 97% loan allows seller contributions to 3%. This difference can impact purchases in lower price range.
Both programs allow for gifted funds to be used for the buyer down payment and for closing costs.
There are other loan features that distinguish the two similar low down payment loan programs. If you have questions which loan program is best for your circumstances, please contact me.
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