Let’s talk about loans: FHA vs Conventional Loan
If you have never been with us before my name is Miguel Gómez from Top Level Home Loans, on this page we talk about strategies of how you can do to obtain that home loan.
A lot of people have recently asked me,vv"What is an FHA loan?" What exactly is a conventional loan, and which one is right for me?
So, in this blog, we will discuss the differences between the two loans and which one is better for you.
There is an FHA loan and a conventional loan. Of course, there are many more, but those are the two most frequent when it comes to purchasing a home.
Now, the FHA loan, at its core, is a government-insured loan, so it has its own rules. When you hear about a different loan (USTA, VA), what we are talking about more than anything is that each one has its own guidelines, and each one has things that it requires.
So, depending on your circumstances, depending on your qualification, each includes things that can suddenly assist you, as well as things that can hurt you.
So, in essence, the FHA is a loan that is secured by government-insured money. As a result, the government has established guidelines for how these loans must be made and what qualifications they require.
The traditional loan is fairly similar, but it does not include insurance, that is, the funds are not insured by the government. Because they are made with private cash, these loans are dependent on each bank, each investor, and a variety of other factors.
Each has its own set of fundamentals, but they can also vary in some ways.
There are many conventional loans available, but the two most common are Fannie Mae and Freddie Mac. These two loans are criteria that these banks or investors have on how they require those loans or qualifications from you. Freddie Mac and Fannie Mae
So, just as each has their qualifications, each has its criteria, so the FHA typically requires a 3.5% down payment, plus the upfront Mortgage insurance fee.
So that's where it comes in; in the previous video, we discussed what insurance is, the upfront mortgage, and how the FHA charges you for lending up to 96.5% of the house's value.
There are normally 3% and 5% down payment schemes in conventional loans, so depending on your credentials, the bank can give you up to 95% or up to 97%.
The fact that nearly no traditional loans have the upfront Mortgage Insurance Premium means that if you buy a property for 400,000 and put down 20,000, your loan will mature at 380,000 because all of that money goes towards the house. and they're not charging you anything on the back end like an FHA.
That UFMIP, or upfront mortgage insurance premium, costs you 1.75% of the original loan amount, but it is an amount that you are adding to the house's debt.
We've found that FHA loans are particularly beneficial for those who are buying for the first time. For example, if you have a somewhat worse credit score, the FHA will work with you. Also, if your income or budget is limited, the FHA will allow you to work with less.
The conventional loan is a little more difficult, but it has its advantages, such as a higher credit score if you have a little more money.
Typically, when you buy your second, third, or possibly investment home, conventional loans are already available.
The conventional one has better guides or you have things that benefit you much more when you are already buying two, three, four houses or one investment house.
Now, there is no easy answer to the question of which one is best for you because it depends on each person's credentials. You must look at your criteria and, depending on your credit score and how much money you have, we will place you in a program.
The most important thing is not to think about which is better for me or which is not, since at the end of the day, the one that allows you to buy a house, whether FHA or conventional, is the best.
Being able to purchase that residence will provide you with far more profit in the long run than thinking about which one costs me more or which one costs me less.
Both loans are wonderful, and either one would be appropriate for a home investment, so it all depends on your qualifications, but watch our videos here to learn how to prepare yourself, perhaps to have better interests, programs, and possibilities.
I hope that this training benefits you in making a decision about purchasing a home. I hope you will continue to follow our website so that we can provide more information like this.
Miguel
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