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馃彙 FHA Vs Conventional Loan 馃彙 - Which Is Better? - YouTube
Channel: Emmett Dempsey
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- On this video, we're
gonna talk all about
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FHA versus conventional loans,
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and we're getting started right now.
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(upbeat rock music)
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- Hey, how you doing?
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Emmett Dempsey, a mortgage broker
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and owner of Treasure Coast Mortgage
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here in Port St. Lucie.
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And welcome to another video.
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On this channel, we talk
more about mortgages,
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the home buying process,
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and some cool things around Port St. Lucie
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and the Treasure Coast.
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So if you're new here, please
think about subscribing.
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FHA versus conventional loans,
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and these two types of mortgages,
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first time home buyers,
repeat home buyers,
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they're the two most
common types of mortgages.
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And then you might be asking
which one is right for me?
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Well, I'm gonna do a
side by side comparison,
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cover different categories on each one,
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one at first on FHA then conventional.
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And you can see that, you
know, sometimes it's a pro,
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sometimes it's a con.
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And I can kind of make a joke
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that the answer to most mortgage questions
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is always, it depends.
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And it's so true, it really
depends on your situation,
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your goals, what you're
trying to accomplish,
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this is your first house or
you're buying a vacation house.
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You know, those things are gonna change.
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So let's go ahead and get a deep dive
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into FHA versus conventional.
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Here we go.
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First, FHA is a little
3 1/2% down payment,
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you know, so it's really not a ton to you.
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You know there was a misconception
that you need 20% dow,
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that's definitely not true.
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FHA is a little as 3 1/2%.
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Next is the interest rates.
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Interest rates on FHA
are government insured.
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So generally very, very low.
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Some of the best rates in
the market you're gonna find
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are FHA loans because they're
subsidized by the government
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through the funding fee.
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FICO minimums, credit scores,
actually the minimum is,
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technically there's no
minimum credit score,
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but most banks have set it
at 500, 500 with 10% down.
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If you have a 580 or more
and you rate 3 1/2% down,
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so it's definitely a lot easier
on first-time home buyers,
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building credit, and past credit history.
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So it has a lower minimum FICO.
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Bad credit wait time.
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Debt obtained off of credit.
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If you had a short sale, foreclosure,
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bankruptcy in the past, FHA
has a shorter wait time.
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Whereas for it, it's two
years for bankruptcy,
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three years for short
sales and foreclosures.
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Debt to income, that's
the number one thing
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that'll determine how
much house you can buy,
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whether you qualify or not.
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So the maximum DTI, usually
on an FHA loan is like 56%.
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It's definitely a lot more
lenient on debt to income
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So there's a very good...
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If you need that, if you have something
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on your income, you only qualifying on one
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and then you need to just stress
for house or what have you.
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FHA will allow you to be
able to build more house.
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Funding fee.
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That's one of the maybe a
con, it's a 1.75% funding fee.
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On a $200,000 purchase price
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or a loan, rather, it's $3,500.
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So, and then that gets,
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generally it's financed
on top of your loan.
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You know, oftentimes you see an FHA,
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you have a base loan and a gross loan.
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That's the FHA funding
fee being financed in.
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PMI on FHA, generally, if
you get put 3 1/2% down,
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that PMI is on there for
the life of the loan.
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So it's there for 30 years.
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And that's just about it is,
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the feature that FHA is right now.
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And if you put down a
little bit more money,
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basically, 5% or more, it'll
come up after 11 years.
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And it's not a debt to income base, not,
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but appraised value based.
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Whereas, you can have
an extreme appreciation,
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it's based off a number of years
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and not based off of the
equity in your property.
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So that's one, I'd say negative about FHA.
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Appraisals.
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There's a kind of misconception FHA,
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it's perceived has a higher,
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it has a more to restrict
appraisal process.
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I mean, basically, it
can't be a tear down,
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has to be basically intact,
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but it has obvious holes
in the walls, wood rot.
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FHA appraisers are gonna ding that
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and make you fix it before closing.
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Now, the appraisers has to do
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a head and shoulders
inspection on the attic.
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It's not a full-blown inspection,
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like, I know some buyers and
realtors have heard that,
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if I tell you, so much harder.
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As long as the house
is in decent condition,
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you're gonna be fine in FHA appraisal.
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FHA does have a loan limit in your county.
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I know in St. Lucie County it's $350,750.
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And so, you have to be careful
that the house you're buying,
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I have run into that sometimes
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where the account loan limit
might not be able to finance.
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That means you have to come out
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of the pocket with more money
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if you hit the maximum on
your county loan limit.
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Seller concessions.
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FHA allows 6% of the sales
price, with no loan to value
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or how much you put down,
you know, requirements.
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Basically, it's 6%, you
can get from the seller.
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Investment properties.
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Can't buy in FHA.
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Vacation homes, can't buy in FHA.
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It's primary residence only.
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Condos.
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Now, I've actually done an FHA condo.
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There's very few complexes
that get approved.
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'Cause there's a process,
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a lot of the FHA's don't do it now.
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There is a spot condo process.
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I saw it, it rolled out.
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Honestly, I have never done one.
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It's just most folks who buy condos
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just use conventional financing.
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I just haven't seen it,
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but a condo is a little
bit harder to do on FHA.
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Okay, and that was FHA.
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And let's go and talk about
conventional, same categories
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Basically, for down payment,
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it's really 3% is the minimum.
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You know, of course, if
you put down 20% or more,
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there's no private mortgage insurance,
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but 3% is the minimum.
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Interest rates.
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Interest rates are
generally higher than...
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It's very FICO-driven
and it kind of dovetails
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on the next one to a minimum FICO of 620.
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But really anything that's under 700
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is gonna have much greater ad-ons
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for discount points to get
a decent interest rate.
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Just that comparatively, interest rates
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on conventional are uninsured,
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and therefore they are
a little bit higher.
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Bad credit wait times.
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It's longer.
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So basically, on your bankruptcies,
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it's four years versus two years FHA.
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Foreclosure's seven years
versus three years FHA.
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So really, and then in
short sales, (mumbles)
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it's four years versus
three years for FHA.
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So you really gotta
pinpoint those wait times.
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That's gonna determine which
way we go, FHA, conventional.
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DTI.
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Now, DTI is very debt to income sensitive,
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and really, anything over 45,
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you gotta have compensating
factors, 50%'s absolute maximum,
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but I don't know, usually
when you go over 45,
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you gotta have some
assets, above and beyond
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what you're putting down,
they're called reserves.
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Other compensating factor
is higher FICO scores
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in order to get those approval.
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So, indeed DTI is capped at 50%.
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There's no even 50.01, it's not allowed.
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Funding fee.
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There's no funding fee
on a conventional loan.
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So that's definitely savings.
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When you look in side by
side, there's no funding,
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no finance funding fee on conventional.
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PMI.
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PMI is generally, in some cases, cheaper,
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depending on your FICO score.
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Whereas on FHA it's set
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no matter what your FICO
score is, it's pointing at 5%,
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you put down three and a half.
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Whereas on a conventional,
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it's really based off of your DTI,
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your FICO score, and that's what it is.
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So, of course, the more you put down,
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unless you're paying my
OB, most does fall off
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once it goes at 78%.
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So appraisals.
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Generally, it's not as strict.
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You can buy homes in not
as good of condition.
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It can't be like a total junker.
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So its misconception is like,
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oh, conventional, it can
be a piece of crap house.
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I mean, conventional,
it's really not the case.
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But it's certainly not as strict as FHA.
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Loan limits.
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Now, that's one positive.
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You go by the conforming loan
limit, which is now 510,400.
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So, and it's been increased
in the last couple of years,
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you know, versus your county loan limit,
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and some counties around
the country it's like
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it's still in like 270s.
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I know in my county it's 350.
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So you gotta be careful
about the loan limits.
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Seller concessions.
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Now less seller concessions,
the more you put down,
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the more seller concessions you have.
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And if you put down 3%,
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basically, it's only 3% of the
purchase price versus 6% FHA.
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But you gotta put down 10%
or more to hit that 6% mark.
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And if you put down 25%
or more, you get up to 9%.
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So basically, the more you put down,
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the more you're gonna
get back from the seller.
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So that's kind of how
conventional concessions work
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Investment properties.
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You can buy them with
conventional financing.
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Generally, I recommend 25% down.
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You can put down 20%,
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but the pricing is much better.
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Put an extra 5% down, buy
investment properties.
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Vacation homes, you can
definitely do in conventional.
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You get minimum 10% down here in Florida.
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But I have a lot of vacation home buyers
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from all over the country
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who've, you kind of plant your flag
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and buy a vacation house here.
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And with the anticipation
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that being their forever
house after they retire.
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Condos.
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Conventional loans have an
established condo vetting process
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that for spot condos, it's,
I've done it several times,
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you have to go through the HOA.
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But that's what we do here in Florida,
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we have plenty of condos
with conventional financing.
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Yeah, you can do condo.
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Well, that's the difference in a nutshell
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between an FHA versus conventional.
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And what's right for you,
and it depends on your goals.
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We'll definitely sit down and do that.
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If you're looking to buy a refinance,
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I'd definitely love to help you
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and your family on your next home loan.
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So give me a call, go
to DEMPSEYMORTGAGE.COM
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Thank you so much for watching,
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and I'll see you on the next one.
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