A conventional home loan is a loan that isn’t guaranteed by any government agency like the VA, FHA, or USDA. However, these loans still have to conform to certain guidelines.
An FHA (or Federal Housing Administration) loan is guaranteed by the government. Because it’s guaranteed, it’s less risky for lenders, and they can lower their qualification requirements.
FHA loans are ideal for borrowers with lower credit (below the standard 620 cutoff for a conventional loan) or who don’t have much money available for a down payment (especially if some of their down payment money is being gifted to them). In some cases, an FHA loan may be the only way someone can buy a home.
Credit score: 620
Down payment: At least 20% to avoid mortgage insurance, but you can get a conventional loan with as little as 3% down.
Bankruptcy/foreclosure: You’ll need to wait seven years after a foreclosure and four years after a bankruptcy to be eligible.
Credit score: At least 500, but lenders may require 580 or higher.
Down payment: Only those with scores of 580 and above qualify for putting 3.5% down. Those with lower scores must put at least 10% down.
Bankruptcy/foreclosure: Need to wait three years after a foreclosure and two years after a bankruptcy to be eligible.
Qualifying income: With an FHA loan, you can also use the income of a non-occupant co-borrower to qualify for the loan. Their income and debt will be blended with yours.
With a conventional loan, you pay monthly private mortgage insurance (PMI) if you put less than 20% down on the home. The amount you pay is risk based, which means that those with high credit scores pay less, and those who put a higher percentage down pay less (if you put 10% down, you’ll pay less than if you put 5% down).
Even if you do need mortgage insurance, it drops off once the loan is down to 78% of the value of the home.
With an FHA loan, you’ll pay an upfront mortgage insurance premium at closing. The amount is 1.75% and is typically bundled with the loan amount. You’ll also pay an annual premium for the life of the loan, and that amount varies depending on several factors, but it’s around .50 to 1%. You can’t get rid of this cost unless you refinance to a different loan program.
Conventional loans have some restrictions on the origins of your down payment money. You may not be able to get a loan if all of your down payment is a gift from a relative.
FHA loans let borrowers use money from a non-profit, government agency, or relative to pay 100% of their down payment.
FHA loans can’t be used on investment properties or second homes. They’re also limited to the loan amount for your area. The amount in most places is $453,100.
Still not sure what kind of loan is best for you? Or are you ready to get started on an application? I’m here to help you make the decision that’s best for you and your finances, so please reach out!
“CSMC Mortgage took great care of us and our home buying needs. Tony was more than we could have ever asked for, he went above and beyond for us and we couldn’t have been more grateful for all his hard work. CSMC Mortgage has a great and friendly staff, I would highly recommend them to anyone looking into buying a home.”
- Jannet A.
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- Lisa M.
“Faye helped me purchase my first home last year. She was very professional and worked very quickly to help me procure financing. She made herself available around my schedule and took the time to explain my options for financing to help me get the lowest rate possible. Would highly recommend her to anyone looking for someone that is professional, highly knowledgeable, polite, and responsive.”
- James Z.
“With this being my first home purchase, my loan officer was very good at explaining everything to me and helping me with all my needs. Thank you for having such great people in the right place!”
- Cathleen H.
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“Baret Grigorian was amazing!! From start to finish Baret was there to help in every way. I never felt like I had to call him to follow up on my loan transaction and he always kept me informed. He was able to get me great financing rates, a lower payment AND money back! Thank you Baret!! I look forward to working with you again in the future!!”
- Kenny D.
“David Honda and his team rocked!! They had great technology that took so much of the pain of home buying away. They were attentive to our specific needs and were on top of our loan process! David was always available, even when he was in Hawaii, and super responsive! Thanks David, Melissa and the team for an easy and great home buying experience.”
- Raymond F.
“These folks are conscience and easy to work with. The “calm” as the “storm” of home loans rolls through! I would not use anyone else. They make sure ALL your questions are answered, be that what competitors may have offered, or ads you may have heard or seen. What a pleasure to do business with. Thank you team CSMC.”
- Michael G.