This is a little known fact. I did not say the program has no affiliation with the government but the funds provided by FHA are private funds and to my knowledge has always been private funds. The government has a less stringent program and it is called Freddie Mac. I am not sure if you know much about the programs like Neiamiah, the Home Providers and others that are allowed to donate money for a buyer to put nothing down. But programs such as these are only allowed by FHA (HUD) NOT Fannie Mae/Freddie Mac. The reason is the private money supporting FHA sees profit in making more people into homeowners. The government on the other hand does not care and will never deal with such companies. Unless you are a A+ borrower the government wants to see you put down at least 5% of your own money on a new purchase. FHA on the other hand will lend to a borrower with a 550 credit score which is pretty low and give the borrower 97% and allow the seller to donate 3% towards closing.
the pro’s and con’s of either from a practical view. I have always done VA Loans. I will be applying for a loan of ablout $105K for an investment house. Are there more points or fees associated with one of these versus the other? Does one take longer than the other to close? Is there really no need to care as long as you get the money?
Stew,
One of the main differences has to do with the mortgage ins. On a conventional loan, the mtg. ins. is provided by private co’s & is called PMI. On a FHA loan, the mtg. ins. is provided by the gov’t & is called MIP (mtg. ins. protection).
The underwriting guidelines are also a lil more lenient with a FHA loan & the dwm. pmt is usually lower.
Also, an FHA appraiser is a lil more picky than a conventional appraiser.
Some of the other differences have already been noted.
With a conventional loan, you can get PMI (Private Mortgage Insurance) waived when the loan balance falls to less than 80% of the contract purchase price.
With an FHA loan, PMI is never waived regardless of the LTV ratio.
One other thing. FHA loans are only given to owner-occupants and there is a requirement of occupancy for the first 12 months of the loan. Conventional loans don’t have this requirement in many cases.
FHA has less stringent guidelines than a Conventional lenders. FHA rates are generally .5 higher than a conventional loan. Conventional lenders sale their loans to Fannie Mae & Freddie Mac a.k.a the Government. FHA is actually privately owned. With FHA you are automatically approved for 97% compared to 95% with a conventional lender. Their are companies that will donate the 3% down payment with FHA loans and it is acceptable, not allowed with Conventional lenders. FHA does NOT like investment property. Conventional lenders on the other hand will lend up to 90% of the purchase price of an investment property. As for credit FHA looks mostly at the previous year credit history. Conventional lenders look mostly at your last two years credit history. FHA lenders are not supposed to go by credit scores even though more than a few underwriters are guilty of that. Conventional lenders generally want to see at least a 620 middle credit score (sometimes flexible with compensating factors such as $20,000 in liquid assets or a lot of equity).
FHA does require more documentation than a conventional lender and a FHA certified appraisal. This generally makes FHA loans take a little longer to close. I hope this inforamtion answers your questions.
P.S. The comparison here is with FHA and Conventional Conforming lenders. Non-Conforming lenders is a whole different conversation. Non-Conforming is the lenders you go to for flexible programs or bruised credit.