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What is the difference between FNMA Conventional and FHA HUD loans in Atlanta?

Mortgage and Lending with 1st Advantage Mortgage

November 24, 2009 01:08 PM

What is the difference between conventional and FHA loans?

There are many differences between conventional and FHA loans.

We will outline some of the major differences for you today. Contact an 1st Advantage Lending representative for additional information on conventional and FHA loans at http//www.atlantahomesaleshelp.com

To give you an example, let us compare the difference between a FNMA or FHLMC loan (similar to FHA, but falls under the guidelines of a conventional product) and an FHA loan.

There are several differences between the two loans. On FHA loans, the minimum down payment is 3.50% and can be "gift" money. On a conventional loan, the down payment must come from the borrower's own funds. Additionally, the money on a conventional loan must be "seasoned" (60 days in the bank) prior to purchasing the home.

In the previous example, notice the closing costs are generally the same with the exception of the Upfront Mortgage Insurance required on the FHA loan. The Upfront Mortgage Insurance is calculated by multiplying the purchase price times 1.5% and then adding the amount to the base loan amount ($100,000 x 1.5%) + $97,000 = $98,500 (new loan amount with upfront MIP rolled into the note). There is NO upfront mortgage insurance on the conventional loan, but the monthly factor is slightly higher.

The taxes will be the same on either loan for which you choose. A common mistake is that people believe is their taxes will vary depending on the loan they choose. This is simply not true. The title company who closes the loan submits the taxes directly to the lender. If you reside in an attorney state, your representation is the one who orders the tax certificate from the Appraisal district. Taxes reported to the lender will be included in your monthly loan payment. There is no mark-up or service charge over and above the actual tax amount.

Homeowner's insurance works the same as taxes. You pay the lender for your policy amount. The lender will escrow this amount and send it to your insurance company at the end of the year when renewal is due.

The principal and interest portion of the payment is calculated by configuring the loan amount (MIP rolled into the balance on FHA) and term into an amortization schedule to calculate the payment amount. Depending on the term and interest rate on your note, you will notice a large disparity between payments. Contact an Supreme Lending representative for additional information on conventional and FHA loans by clicking here.

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