#Conventional 97 Loan #FHA vs Conventional 97 #FHA vs Conventional Interest rates
So saving for a down payment is hard and you’re looking at these two loan programs one an fha three and a half percent down payment or the conventional 97 which is three percent down payment there’s a difference between the two and that’s what we’re going to talk about today so stay tuned hey laura galen here with mountain prairie living and powered by era shields
And welcome to my channel i answer questions about the home buying and selling process and talk about the real estate market so if that’s what you’re into i hope you stay tuned and subscribe to the channel so today’s video is going to answer the question what’s the difference or the pros and cons of the fha three and a half percent down payment program loan program
Or the conventional 97 3 down program so let’s talk about those let’s start with the fha loan program it is a minimum down payment of 3.5 percent and it’s often used with a down payment assistance plan but it can be used on its own also so what are some of the pros of this loan program the first pro is that it’s three and a half percent down now it does require
Owner occupancy so you have to live in the property but one of the cool things about this particular loan program is you could buy a single family home you could buy a duplex a triplex or a four plex so up to four units the only caveat there is that you must live in one of those units so it will be owner occupied but you could buy your first income property this
Way another pro of this program is that the minimum credit score is 580. now that’s a low credit score when we’re looking in the 800s for being excellent credit so 580 allows someone to get in the door of a pr of a home at a lower credit score now mind you the interest rate may be a little bit higher but it does allow you that’s a pro that you can get in at a lower
Credit score another pro is that they actually allow a higher debt to income ratio and if you’d like to know more about what the debt to income ratio calculation is and how to calculate calculate your own then check out this video here so it’s a wonderful way to get in but it has some cons with those two pros another pro as i mentioned earlier is this is often
Used with a down payment assistance plan so you could get a program that offers you the down payment and they put it on maybe as a silent second or as a grant you might get the money for free and this is the typical loan that they use for that program it is a government-backed loan so it’s a little different than the conventional loan this loan has loan limits and
It varies by state and by county in el paso county colorado where i currently reside and practice real estate the loan limit for 2022 is 460 000 for a single family unit it does go up for four plex it’s up to 884 thousand six hundred dollars so it does vary depending on the type of unit but it will vary by state it will vary by county and you can easily look that
Up i’ll put a link below in the description box so if you wanna check out your area if you’re watching this video from another area then feel free to do that let’s talk about some of the cons of the fha three and a half percent down if you’re in a multiple offer situation which is really common in today’s seller’s market this loan program may not look as favorable
As a conventional loan program simply because of the lower credit score and the higher debt to income ratio that it’s a little bit more likely that that loan may not make it all the way to the closing table so you can prevent that by making sure that you have a pre-approval with an fha loan before you go to submit in a multiple offer situation but it still might be
Challenging if you’re up against conventional loans with a little bit more down payment or cash offers cash is always king so that is an a con of this particular program another con of this program is that it does require the pmi private mortgage insurance because obviously a lower down payment is a higher risk to the lender so they’re going to add an additional
Insurance called private mortgage insurance so that private mortgage insurance does two things it adds a little bit more to the closing costs of that loan oftentimes it is financed into the loan so the loan will be a little bit higher but it doesn’t fall off this loan meaning that the only way to get rid of the private mortgage insurance which depending on the
Loan amount could be a few hundred dollars added to your payment is to refinance that loan into a different loan when the loan to value goes up so it’s it never falls off this loan it doesn’t you can’t uh send in a new appraisal that says hey i’m at 80 to 80 to 20 loan to value you can’t take it off it lives it stays on for the life of the loan let’s talk about
The conventional 97 a 3 down payment conventional loan let’s talk about the pros first obviously the pro is that it’s the lowest down payment program or loan program that’s out there it’s three percent down so it means less money to have to save it’s a little bit different if you have to save for three and a half percent down versus three percent down so it gives
You a little bit more edge to get there quicker if you’re saving for your down payment another pro of this program is that it’s a conventional loan so in a multiple offer situation it will look a little bit more enticing to the seller when they’re looking at a variety of offers when you look at properties having a conventional opportunity gives you a little bit
More leeway with the homes that you can look at there are many homes on the market that don’t qualify for va or fha meaning the condition of the home may not meet the requirements of those two loan programs so having a conventional loan allows you to see and view and and maybe make offers on a little bit more properties in the area that you’re in another pro of
This program is that in this situation they will remove the pmi as soon as the loan to value has increased to an 80 20 minimum you can do a refinance of the home just like in the fha or you can do an appraisal submit it to the lender and request that that pmi be removed so this loan program does allow you to remove that pmi when you hit an 80 20 loan value when
The value of the home increases over time the other pro of this loan program is that they have higher loan limits in el paso county colorado the loan limit goes up to 647 thousand dollars so it’s a little bit higher loan limit now let’s talk about the cons of this program it is an owner-occupied program meaning that you must buy an owner-occupied program single
Family residence it does not allow for the multi-unit properties as the fha does so you must be owner occupied and in many of the lender overlays you must be a first-time home buyer now i just want to clarify first-time homebuyer doesn’t mean that you’ve never bought a home it just means in a certain period of time you have not owned a home so there are limits
And information on that and i’ll put a link below to that information so you can check that out but it does depend on the lenders and the loan programs but it just requires owner occupancy and you must be a first-time home buyer now this next pro could also be a con for some of you if you’re still working on your credit but there is a minimum credit score of 640
To get into this loan program now that’s a positive when you’re in a multiple offer situation and you’re submitting this low down payment program because they the seller then knows that your credit score is a little bit higher so you’re a little bit likelier candidate to get to the closing table also a positive and a negative it does have a lower debt to income
Ratio meaning that it can can’t be higher than 50 preferably lower those two things are great positives especially when you’re in a multiple offer situation depending on where your credit is so those are two positives and a little bit of negatives for some people depending on on how you look at this program depending on your financial situation and the area
You’re looking at a home in this program of three percent down may not be available and it may be shifted to a five percent down so you definitely want to work with a lending professional to find out what area you’re looking in and what offerings they have of this conventional 97 and whether it’s available in the area that you’re looking for so there’s a synopsis
Of the pros and the cons of an fha three and a half percent down versus a conventional 97 3 down they have some pros and cons and of course depending on your financial situation or your saving situation and your need to get into a home wherever you are you have to choose the program that’s right for you you always want to work with a lending professional i am not
A mortgage broker it’s not my wheelhouse but outlining the ideas of the loans and the pros and the cons of them from a real estate standpoint is really important to note so when you’re making decisions on which loan program is best for you just understand those few nuances with regards to those loans i hope you found value in this information if you did give it a
Like and subscribe to the channel if you want to know more information about strategies to work in a multiple offer situation in this strong seller’s market then check out this video next have a wonderful day and i’m so glad you were here
Transcribed from video
FHA vs Conventional 97 Loans | Conventional 97 Loan | FHA vs Conventional interest rates By Laura Gallant
