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Not Sure About FHA? Here鈥檚 How To Decide - YouTube
Channel: Win The House You Love
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all right so you've heard about fha
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loans and now you're wondering do i
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actually need one because i see all the
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requirements and everything that i need
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to do especially if you've watched this
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video but then you're thinking okay but
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how do i know if fha is right for me and
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so the big thing that i don't want to
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happen to you is is you to fall into
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into the first time home buyer trap with
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fha loans and what happens here is there
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can be this thing around fha loans where
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people think that it is the only first
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time buyer loan that if i'm a first-time
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buyer then i need to go fha because
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somehow i won't qualify for conventional
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and that's just not the case even though
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fha is easier to qualify for usually
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conventional is the best long-term
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option and so i'm going to give you four
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questions to ask yourself in this video
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that way you can decide if fha is right
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for you or not and i can't tell you the
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amount of times i've seen people in the
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comments of videos i've done about
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conventional loans and they're like wait
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i could have actually qualified for
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conventional and saved a lot more money
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than going with fha my loan officer only
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told me about fha so i want to make sure
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that you get put into the right loan so
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you can save the most money in the
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future okay so fha is for specific use
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and conventional is more for long term
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so they're all different types of loans
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and each different type of loan usually
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has like a couple specific use cases
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when you would need that you need to use
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that loan for a specific purpose whereas
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conventional tends to be one of the
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better loans that has the least amount
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of
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expensive costs added into it so usually
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it's the best long-term option the
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reason why people would use fha is for a
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specific use case this would be
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something like maybe a high debt to
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income ratio or a low credit score which
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i'll walk through here in just a little
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bit and fha is more expensive long-term
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because there are two costs
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that a lot of people don't consider
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and these are upfront mortgage insurance
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and monthly mortgage insurance so for
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instance if we looked at a cost
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comparison on a 300 000 home with the
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minimum down payment for fha which is
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three point five percent and the minimum
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down payment for conventional for first
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time buyers which is three percent over
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ten years you would save two almost
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twenty one thousand dollars
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by going with a conventional loan over
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fha and the main reason here is because
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you do have that financed mortgage
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insurance so when you get an fha loan
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extra mortgage insurance is going to be
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added on top of your current loan
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balance in this instance it would be
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almost 6 000 it's 1.75
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of the loan amount and you have more
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expensive monthly mortgage insurance as
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well usually than a conventional loan
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and so when you see this cost difference
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you're like well why would i go with fha
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over something like conventional and for
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most people conventional is the better
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option but there are some use cases so
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for you you might be wondering what is
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that specific use case when fha might be
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better so before we touch on that just a
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couple quick fha downsides to understand
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a little bit more about
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fha because it really can be a great
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program for people who need the
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flexibility of fha
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but some downsides to this
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is it is less attractive to a seller and
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you might think be thinking like who
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cares about what the seller thinks well
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you should because you're going to be
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putting in an offer on a home and you
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want the seller to accept that offer and
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so for a seller there can be
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a little bit of a bias against
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non-conventional loans and this is
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because conventional loans usually are
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easier to get completed especially with
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something like an appraisal fha can be
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tighter on its requirements for what the
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home looks like and not from an
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aesthetic
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place but more from a
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health and safety perspective and so
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sellers often
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have this perception that people who use
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fha loans maybe aren't able to qualify
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as well or aren't as don't have the
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ability to purchase home as easily
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there's a lot of misconceptions in there
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that sellers have unfortunately there's
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no easy way to get past that so
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conventional usually is the best option
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to put in there over fha when you do put
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in an offer also higher rates on average
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with fha now this depends lender to
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lender
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as a broker fha loans are almost always
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less on interest but as a national
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average fha loans do have a higher
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interest rate also you do have the two
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types of mortgage insurance
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and since it's more costly that's less
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money in your pocket
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it's sometimes a funny way to talk about
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the costs of loans and people like i
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don't really care i just worry about my
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monthly payment
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like you should care
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because your monthly payment i know that
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that's my that's a near sided view to
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just say your monthly payment but what's
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actually happening there is when they're
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when a loan costs more money that's less
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money in your pocket right when we
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talked about that other example
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in ten years from now would you rather
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have twenty thousand dollars more or
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twenty thousand dollars less right you
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wouldn't just say well i want the low
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the low monthly payment of course
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but that has an impact over a long
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period of time would you rather have
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twenty thousand dollars more or twenty
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thousand dollars less that's why these
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decisions are important to make okay and
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if you're feeling overwhelmed at this
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point it's it's gonna be okay i'm gonna
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walk you through these four questions
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yes or no and tell you which one is
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gonna help you understand uh more about
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if you should choose an fha loan or not
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so there are other types of loans right
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fha and conventional tend to be the most
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common that people talk about because
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you have conventional kind of being more
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of the gold-ish standard of loans the
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typical loan that people get fha is the
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next best option for people who need
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some more flexibility
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so we have those in here but then
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there's also other programs like va for
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veterans you have usda for more rural
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properties you have home ready and home
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possible conventional loans for
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specific income limits you have naca
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loans you have
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grants combined with other types of
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loans like conventional or fha you have
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jumbo loans you have land contracts all
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these different types of loans have
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specific use cases and so what all
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you're trying to decide here and what
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loan is best for you
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is what use case do you need what
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specific scenario do you fit into and
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what loan is going to serve you best
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with the goal that you have so for most
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people your decision is going to come
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down to these four questions now every
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situation is unique and different and so
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this is just going to be a bit of a
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guide for you okay it's not going to be
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the end all qualification right you
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can't qualify for a loan with just four
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questions but it will guide you in the
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right direction
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so first is your credit score lower than
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a 640 if yes fha is likely best and then
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i would suggest you refinance into a
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conventional loan so fha loans um do
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allow you to have
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a loan anywhere between a 500 and
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you know well 500 as a minimum credit
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score and all the way up till the top
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there's no maximum on the credit score
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um however if you're below a 640
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conventional loans likely aren't the
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best for you even though the minimum
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conventional the minimum credit score on
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a conventional loan is 620.
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it's probably gonna be better to go fha
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anywhere between
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620 and 640. okay
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now what i would suggest is looking at
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something like an fha loan if you're
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there then work on your credit to
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refinance into a conventional loan right
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a commission loan is really the best
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long-term option for a loan and so for
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most people they would want to treat an
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fha loan almost like a temporary loan
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even though you get it as a 30-year loan
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most of the time
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you can still choose to have that fha
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loan uh maybe your credit score right
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now is maybe maybe maybe it's a 590.
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okay you get an fha loan now
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or maybe it's lower 600s
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then you work on your credit for maybe a
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year or two and you can refinance then
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into a conventional loan long term
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so if no if you do have a higher credit
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score than 640 then conventional
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probably is your best option there
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okay also
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tying into credit a little bit do you
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have any like credit bumps any credit
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issues things like late payments in the
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last 12 months maybe a chapter 7
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bankruptcy within the past four years if
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that's the case fha is likely needed
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and fha and other government loans or
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portfolio loans work well for this too
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so if you do have uh maybe a little bit
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more rough credit history then
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conventional probably is not your best
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option if your credit is pretty clean
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and you don't have any of these things
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in your way conventional is probably
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your best choice there
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okay number three
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are you wanting to buy a home that needs
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a little bit of some work done
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if so you probably need to go with a
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conventional loan or a rehab loan
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and this is because fha doesn't
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work super well with homes that need
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work unless you're using a specific
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rehab loan where you're actually
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financing the cost of the home and the
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cost of the repairs as well which is its
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own separate
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video that uh you know deserves its own
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attention i do have a video on two or
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three k loans if you're interested
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so if no if you're saying yeah this home
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is actually move and ready fha will work
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for that or a 203k loan which is a
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construction loan so ultimately though
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if the home that you're looking for
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needs some work you're like i want to
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buy find a home that needs some work fha
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probably is not right for you
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and then finally
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do you have a lot of debt specifically a
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high debt income ratio of 45
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or higher so i have several videos on
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debt to income ratios and how to find
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those out especially in my uh 2021 fha
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loan requirements video talks about debt
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to income ratios for fha loans but if
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you do have a high debt to income ratio
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fha is a really good option for that fha
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is one of the loan types that allows the
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highest debt to income ratio of all
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other loan types compared to
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conventional that uh debt to income
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ratio ceiling is a lot lower and so if
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you do have a lot of debt fha can be a
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good option it's a lot more flexible
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if you don't conventional again is
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probably best so you can kind of see the
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pattern here where if we can go
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conventional it's probably going to be a
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better solution however there are a
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couple of these use cases where
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where you're at right now maybe the fha
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is better for you and then you can work
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on whatever you need to work on to then
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qualify for a conventional loan here in
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the future
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um and you'll notice something that i
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didn't mention in here
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was the down payment the down payment's
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actually not a big consideration that
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you need to have when considering
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something like an fha loan versus a
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conventional loan versus any other type
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of loan there's still this weird
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misconception about needing 20 down as a
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down payment for conventional loans
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which is not true at all conventional
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loans actually have a lower down payment
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minimum than fha so if you're a
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first-time buyer you only need three
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percent down on a conventional loan
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for fha you need 3.5 down on an fha loan
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and so this shouldn't be a big
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consideration sometimes i see people say
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like i went with an fha because i don't
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have 20 down
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okay
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you only needed three percent down to go
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conventional so don't let the down
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payment trip you up and make you think
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that you have to go with fha because you
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don't have 20 down 20 down on a
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conventional loan
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only removes the mortgage insurance
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monthly from that okay uh
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you can still do 3 down conventional or
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5 down conventional and have mortgage
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insurance and that mortgage insurance is
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usually going to be cheaper than fha's
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mortgage insurance anyway
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another interesting facet of fha
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on the down payment side that makes it a
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little bit more interesting than
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conventional
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is if you're looking at a multi-family
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home so two to four units
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if you choose to live in one unit and
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rent out the others
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fha will allow you to do 3.5 down
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where conventional will require 15 to 25
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down on multi-family homes okay so at
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this point if you're wondering like well
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what about my unique situation maybe
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you're uh in one of these cases that we
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talked about the four questions or
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you're thinking well i have something a
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little bit outside of this scenario what
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you can do is you go to
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winthehouseylove.com apply we have a
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network of loan officers who are helpful
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and ready to talk with you about the
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questions that you have and so it really
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is as simple as talking with a loan
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officer reviewing your loan options and
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getting approved and from there you're
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able to shop for some homes that you
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might be interested in so let me know is
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fha
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an interesting option for you yes no or
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after this video you're like you know
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what i think conventional is a better
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option for me let me know in the
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comments and thanks for watching
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