Conventional Loans vs FHA Loans | What is the Difference?

Are you wondering what is the difference between a Conventional Loan vs a FHA Loan? If so, then this video is for you!

Hi my name is kelly zitlow i’ve been helping people with mortgages for over 25 years and one of the things people are always asking me is what is the difference between a conventional loan and fha today we’re going to dive deep into the differences between conventional loans and fha loans and you’ll want to stay to the end for my number one tip it’s a good one but

Before we get started please do me a favor and subscribe to this channel i truly have a passion for educating our community about home loans and i love helping people please subscribe and become a part of this community okay so let’s get started first let’s talk about fha what the heck is it fha is a government-backed home loan that has been around since the 1930s

It is very user friendly and it allows for a three and a half percent down payment so as i’m talking with new home buyers or even people that have purchased before but maybe don’t have a lot of money to put down we start to evaluate what is fha look like for the particular scenario and what does a conventional loan look like there are some really big differences

But mostly the way that credit score impacts each of these loans as well as waiting periods after life events and finally how mortgage insurance works way that credit scores impact each one of these loans are materially different so on fha fha is a much more user friendly program not so much credit score driven allows for lower credit scores and allows for things

That have happened in life so maybe there was a bankruptcy or foreclosure or a short sale fha’s lending guidelines are much more flexible with regard to waiting to buy a house what those waiting periods are and the way that the mortgage insurance works on fha it’s a flat fee based on the down payment and the amortization it is not driven by credit score whereas

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On conventional loans conventional loans allow for a primary residence a secondary residence or vacation home or an investment property fha primary residence only but when we think about conventional loans really it’s going to come down to credit score credit score is a really big deal it’s going to drive not only the interest rate on a conventional loan but

Also the cost of the mortgage insurance so as a reminder on fha mortgage insurance is driven by the down payment not credit score unconventional mortgage insurance is driven by the credit score and the down payment so credit score is much more important on a conventional loan when we get into the details now the way that mortgage insurance works on the two loans

Is completely different there’s always a lot of questions that stems around how mortgage insurance works on fha so let’s just get into that one know that with an fha loan you’re going to pay mortgage insurance on two levels you’re going to pay what’s called upfront mortgage insurance it is currently 1.75 percent of the base loan amount and that gets financed into

The loan and amortized over that 30-year amortization secondly you’re going to pay annual mortgage insurance on an fha loan and for a loan amount that is less than five percent down remember the minimum down payment on an fha loan is three and a half percent so if you’re putting less than five percent down and you are doing a 30-year amortized loan then the cost

Of the mortgage insurance is a flat fee it is .85 of the base loan amount that’s how mortgage assurance works now the other big piece of it is a lot of people think that once your loan balance reaches under 80 loan to value that you get to drop your mortgage insurance not on fha if you are doing less than 10 down on an fha loan that mortgage insurance stays on

The loan for the life of the loan it never drops off it doesn’t matter how much equity you gain or what your loan to value ends up being if you’ve purchased the house and doing less than 10 down the only way you are getting out of mortgage insurance is to refinance into a conventional loan at some point or refinance back to an fha loan with a loan to value less

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Than 90 percent so conventional not so much it really is different so in a conventional loan you have a option of how to pay mortgage insurance first of all you can pay it monthly you can finance the cost of the mortgage insurance and buy it out completely finance it into the loan or you can just pay the cost of the mortgage insurance not finance it into the loan

But actually bring those funds to closing and just buy it out altogether but let’s say you choose to pay it monthly on a conventional loan the mortgage insurance is automatically going to drop off at some point in the life of the loan unlike fha remember if you’re doing less than 10 down that mortgage insurance is on there or the life of the loan as long as you’re

In that loan so conventional again mortgage insurance is going to be driven by that credit score though as well as the down payment so there are pros and cons between each one of these programs and honestly talking with a lender that is educated in both is going to be your best bet because sometimes fha is a better option depending on the credit score depending on

Life events etc and sometimes all day long it’s a conventional loan that makes sense so being able to walk through that process get educated makes you a better educated buyer and that’s what we all want we want our buyers to be empowered understand the differences so then you’re choosing the best loan that fits your particular goals one of the other big differences

Between fha and conventional loans are loan limits so with fha they generally will have a lower maximum loan amount allowed and remember that is set by hud by county and it generally changes once per year and then on conventional loans the loan limits are generally higher and i mean like almost you know like 180 000 higher depending on the county you’re in so

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Higher loan limits once you exceed that conventional conforming loan limit most of those loans are delivered to fannie mae or freddie mac but once you exceed that loan limit it becomes a jumbo loan and that allows for much much higher loan amounts but primary difference between conventional fha loan limits credit score how mortgage insurance works and life events

My number one tip is if you are married and you are purchasing a home in a community property state if you are using a conventional loan the lender will not need to pull your spouse’s credit however if you are using an fha loan and your spouse is not going to be on the home loan and maybe your spouse isn’t going to be on the deed of trust fha guidelines are still

Going to require that your spouse’s credit be pulled which means that the lender’s going to want to get the information needed to pull credit and get their authorization to pull credit so that’s the number one tip the way that each of those programs approach somebody that’s married when their spouse isn’t going to be on the home loan materially different for more

Information on how to buy a house without your spouse check out my video in the description below so that’s it now you know the difference between a conventional loan versus fha remember it’s always recommended to work with an experienced mortgage lender to help you through the mortgage process if that’s in arizona california or colorado please give us a call we’d

Love to help please comment below and don’t forget to like share and subscribe we’ll see you next time you

Transcribed from video
Conventional Loans vs FHA Loans | What is the Difference? By MORTGAGE How Do I?