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FHA vs. Conventional Loan

Mortgage and Lending with Brand Mortgage

FHA Loan Or Conventional Loan...That is the question...

Anyone can choose a government sponsored FHA loan. FHA loans are no longer just for first time homebuyers. As the economy continues to drop, more Americans are becoming less willing to depart from saved cash they would ordinarily use for a down payment. As home prices continue to drop, current homeowners are losing equity that would be contributed towards a down payment on a new home. Since 100% programs are a thing of the past, and conventional loans now require at least a 5% down payment, the FHA 3% down payment sounds very appealing. But, you better secure an FHA loan before January 1, because the FHA down payment will be increasing to 3.5%.

The increase of the FHA down payment is another way of FHA and HUD telling the American public we are not going to be the next subprime mortgage. FHA will approve a borrower with as low as a 580 credit score, but you better have assets to back up a low Fico score. Otherwise, FHA will send you packing.

Another appealing item an FHA loan has over a regular conventional loan, is lower mortgage insurance. FHA mortgage insurance is usually several dollars less than a regular conventional loan, especially, if you have a FICO score, less than 620.

A small sore spot in the overall beast we call FHA, is the upfront mortgage insurance premium. The percentage, in which you pay, depends on your loan purpose and your credit score. The old amount was a flat 1.5%. Now, you could pay as much 2.25%, depending on your credit history and the loan purpose. Be sure to be aware of how much your up front mortgage insurance premium may be.

FHA down payment assistance virtually dried up after the House passed a law that prohibited borrowers from obtaining their down payment from a third party. This large blow to the mortgage financing business has helped decrease home sales and place many homeowners back into their old apartments. FHA will still allow you to receive a gift for the down payment from family, friends and non-profit organizations such as a church, but that is all. If you have a family member who is willing to donate your FHA down payment, take it. If you opt to use a friend's money, be prepared for an extensive background check on your relationship. Be sure to provide as much information as you can. Your down payment gift cannot be required to be paid back.

Conventional loans will allow a gift for a down payment, however you will have to prove the donors ability to give the gift. Your donor must provide a bank statement showing where the gift has come from. No part of the gift can be borrowed by the donor. Conventional loans also can contain large rate additions for borrowers with less then perfect credit. This increase could equate to hundreds of dollars in additional interest payments.

Whether you are a first time home buyer or a seasoned veteran, it is good idea to contact a mortgage professional before you decide to buy. This will give you a chance to review different loan programs that fit your need as well as find out how much home you can afford. Obtaining a loan is easier than you think. Whether you choose an FHA or Conventional loan the more upfront work you begin should ensure a smooth home buying experience.

Posted by


Scott Lambert
US Bank - Santa Monica, CA

The loan brokering industry has changed significantly over the past few years.

One of the main changes is on their minimum credit score requirement on FHA VA Programs.

Many wholesale lenders are requiring a 620 minimum credit score.


There's Hope!!!

I work directly with US Bank's Nationwide Home Mortgage division which allows me to offer a

No Minimum Credit Score requirement on our FHA VA Programs.

Realtor's, Mortgage Professionals and Consumers are all welcome to contact me.

As the industry keeps challenging us it's good to know that there are options.

Homeownership is my community pledge to you.

Contact me directly: 480-538-5663

E/M scott.lambert1@usbank.com

May 22, 2009 12:37 PM