why do sellers prefer conventional over fha

Lastly, sellers obviously want to get the most money for their home. There are various requirements, such as a max LTV, minimum credit score (generally 620), and so on. Or am I stuck paying the PMI because of the refinance. Any advice is appreciated, thanks! Of course, a 580 credit score is pretty dismal…and you should certainly strive for better, even if you are able to qualify for an FHA loan. That means the FHA is no longer winning in the down payment category if you ignore credit score. A conventional loan, for instance, could be used to buy a primary residence, vacation home, or rental property. Do you know if we would be able to qualify for a conventional or why our lender chose that option? Summary: The VA Home Loan Program is the most important benefit available to veterans who have served our country in the military or who are still serving. If you're applying for an FHA loan, it's assumed that you'll be living in that home full-time. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. I also have always carried my own escrow and was putting down enough to bring the loan to value amount below 80%. Sellers may assume the deal is … This site is outstanding and your responses are extremely informative. Want a loan for $260,000. Shop around and you’ll see the difference in total payment. How strict are they compared to fha for a first timer? Again, with heartfelt thanks for providing us with your knowledge! So if you want a 10-year fixed mortgage, or a 7-year ARM, a conventional loan will surely be the way to go. Borrowers with FICO credit scores of at least 580 must only come up with a down payment of 3.5% of their homes’ final purchase price to qualify for a mortgage loan. Probably best to ask if you qualify via the conventional route (and to what purchase price) so you can continue your search. My scenario is this: my wife and I are buying new construction and we had a pre approval now midway through the house being built we have been told that we were denied for our conventional loan through the builders mtg company. What does Name of person acknowledging mean? The conventional route requires better credit (620+) in most cases but you can avoid mortgage insurance. Meanwhile, conventional mortgage loans require a minimum 620 FICO score. Would we have PMI for the life of the loan? So if you’ve got 20% to put down, a conventional loan should be the better deal because you won’t have to pay PMI every month (or upfront), even if the interest rate is slightly higher on the conventional loan. Here is a list of several of reasons: Only a 3.5% minimum down payment on an FHA loan as compared to 5% on conventional… ), And you can get financing on more property types, Including vacation homes and investment properties. Buyers love FHA because:-The new "subprime": The FHA loan makes more sense for home buyers with credit scores between 620 and 660 than a conventional loan. There are two major reasons why sellers might not want to accept offers from buyers with FHA loans. But FHA loans can be a good option for those with bad credit and little set aside for down payment who are determined to get a mortgage. Why would that be and should I choose the FHA instead? With FHA, you have to pay MI upfront AND monthly for the life of the loan (in most common scenarios). My mortgage company is not giving me any answers. Lenders can’t override the FHA’s condo approval system. Two different rates may appear equal but if there are huge closing costs tied to one rate it may actually be a worse deal even if the rate is lower. What’s the appeal of the FHA mortgage loan? While conventional loans typically require a higher credit score than an FHA loan, if your credit score is high, you can still secure a conventional loan with a 3% down payment. So make sure your FHA seller too is aware of how the FHA will calculate their payoff on their home and recommend an end of month closing, so they can put as much money in their pocket when they sell their home. The reason this might be the case is due to the low credit score requirement coupled with the low down payment requirement. In any case your actual rate of 3.75% is what monthly payments should be based on. I also pay 800 a month in student loans. I have a FICO of 691 now. Unfortunately, for borrowers with VA financing, this can be difficult. While FHA mortgages require a slightly higher minimum down payment, you only need a 580 FICO score for approval. He has been writing passionately about mortgages for nearly 15 years. Thanks! Most borrowers who use this program in 2016 will end up paying 0.85% of the loan balance. I don’t have a set time frame to buy one I”m just now starting to look at what I need to learn. Ask the lender to break down ALL the costs and do a side-by-side comparison to determine the differences. Can I Lower My Mortgage Rate Without Refinancing? A lot of sellers prefer conventional loans because if the roofs OK n there no termites they will make the loan . As such, a seller whose short-sale home is in disrepair or needs more than minor cosmetic work may prefer a conventional offer because it is less likely to result in a request for repairs. be very careful though , brokers prefer you to go conventional because they make more money on them . Payments will be more than they are now by several hundred dollars and cost me 4k a year in PMI alone. First off, I’m glad you’re taking the time to research and learn. Is paying your own escrow better vs letting the lender do it? Some even claim FHA loans are the “new subprime” due to the dubious mix of low down payment and credit score requirements, despite originally being geared toward low and moderate-income borrowers. But am thinking of Refinancing for a better rate or should I wait till 2017 that the PMI will expire on the loan. is not an option since we are purchasing an unoccupied short sale. And as noted, you or the property may not even qualify for an FHA loan to begin with, so the choice might be made out of necessity. Depending on the situation, the best offer might come from an FHA borrower, or one using a conventional loan. They can also help you with any snags you might run into. Cash sales made up 22% of sales in December 2018, which is up from 20% the year prior, according to data from the National Association of Realtors. Will that stop my loan process? Not usually, but in some cases they can be more problematic than a conventional bank loan. Why do sellers prefer conventional over FHA? Sorry about my typo and thank you for the response! Conventional and FHA loans also differ in the types of property you can use them for. This spread can vary over time and there’s a good chance FHA mortgage rates will be lower than conventional ones in the future, so pay attention to current rates on both products as well. The underwriters said there is a Identity clause in FHA guidelines. So i would want to know can i get any conventional loan with 7% down payment for purchase price 670k….i was told minimum is 10% down for conventional loan for loan value above 430k. The realtor said that it has to be a conventional loan, however, I belong to a credit union. Contact us for more information about our services today. My goal was to go conventional so I could cut the PMI and pay my own escrow. It surely beats reading thru the dry content of hud.gov and other sites to get a quick snapshot of the two types. My concern with FHA was if we, as sellers, could run into problems. My 1st is $151,000 at 4.625 (Conventional loan) and my 2nd (home Equity loan) is $56,000 at 6%. I bought the house April 1, 2015 with my brother in law putting up the cash as the “bank” with the agreement that I refinance immediately. One of the pros listed for FHA is that closing costs and down payment can be from a gift. Which one is best? Getting final loan approval took about 45 days, instead of the typical 30 days for a conventional loan. Borrowers with FICO credit scores of at least 580 must only come up with a down payment of 3.5% of their homes’ final purchase price to qualify for a mortgage loan. A strong borrower profile should help you avoid any problems. Of course, you can argue that the PMI is built into the rate when putting down less than 20%, even if it isn’t paid explicitly. Chances are if you’re a first-time home buyer, you’ll use an FHA loan over a conventional loan. An FHA cash-out refinancing mortgage may offer lower interest rates than traditional home equity financing loans; you may qualify for one of two FHA mortgage plans which offer cash-out plans. So, i am making 7% down payment as against 3.5%. There are some aspects that can help sellers properly price and sell their property to someone using an FHA mortgage. But they’re mostly used for home buying anyway. We’ll discuss this in this article. Home sellers are directed by the real estate agent who believe that there are more complications with FHA home loans. But do the math either way. Don’t just take their word for it! After reading your Blog and all the Q&A, I can tell I have a LOT to learn. It’s true that many condos aren’t eligible for FHA financing, as far as why the lender chose FHA I don’t know. Conventional ($200k loan @ 4% with 10% down) for borrower with 720 FICO Score. Another plus to conventional mortgages is that they’re available at pretty much every bank and lender in the nation. But did you know in the luxury market, an all-cash offer improves your likelihood of success by a whopping 438%, according to bidding-war data collected by Redfin?. So it might be easier to go FHA vs. conventional if you’re struggling credit score-wise. As far as which loan to pick, there are now conventional loan options with just 3% needed for down payment via Fannie and Freddie, which is less than the 3.5% the FHA asks for. stumbled upon this website after searching the pros and cons between fha loan and conventional loan and this article helps a lot in understanding it. As you mentioned, you can avoid PMI with a 20% down payment and the conventional route, which is a plus in that you won’t have to pay costly MI. They do not want to accept a mediocre offer and leave others on the table. Why do sellers prefer conventional over FHA? I am interested in purchasing a condo for $89.000. They also generally have lower closing costs than conventional loans. There are two situations when a seller should choose a Conventional offer over an FHA offer. The problem is the mortgage insurance still stays in force for the life of the loan on FHA loans in most cases…. So if you’re looking for something a little different, the FHA probably isn’t for you. Why Would a House Not Be Approved for a FHA Loan?. I am furious and don’t know what to do. It really depends on the actual numbers and what you plan to do with the loan/property long term. I have the 5% which is about 6600. There are two situations when a seller should choose a Conventional offer over an FHA offer. Can I get a conventional loan mortgage my credit score is 712 now, also can put 20% down. Our broker/lender qualify’s us for FHA of course with upfront & monthly PMI (around $260 per month) & interest at 3.375%….But we can maybe also qualify for conventional with slight higher 4.25% with no PMI for between 5 to 10% down…Which one works best? I’ve mentioned the various advantages of going conforming…more loan options, no PMI for life (or at all), lower DP requirement, etc. Please advise. In fact, the Fannie Mae Homepath program only requires a three percent down payment with no minimum borrower contribution (and you can get up to a 3% credit for closing costs). It depends if she can prove extenuating circumstances to shorten the waiting period. We are 5-years post foreclosure, and have more than 20% to put down. Is this crazy high? Does the seller have to pick up more costs at closing with a FHA loan? So there’s a very good chance you’ll need an even higher credit score with many lenders. Granted, the FHA appraisal is a bit tougher, but credit requirements on an FHA loan are lighter. Additionally, there are select lender programs that offer 3% down with no MI, so in some cases you can put down even less than an FHA loan without being subject to that pesky mortgage insurance. You need to look at both the rate and the costs to get an accurate picture of which mortgage may be best for you. Fannie and Freddie have a two year waiting period if there were extenuating circumstances, otherwise it is four years. Buyers love FHA because:-The new "subprime": The FHA loan makes more sense for home buyers with credit scores between 620 and 660 than a conventional loan. Does it make a difference which mortgage broker a person goes with? Not usually, but in some cases they can be more problematic than a conventional bank loan. I am looking at purchasing a home and would like to know if there are requirements regarding commuting to work distance from your home. Where can I find out more information about my situation. And with an FHA loan, 100% of the down payment can be a gift from someone else. However, it may not be an issue for you because your DTI ratio is already so low. FHA-approved home appraisers will determine the value of the property, but they also must ensure that it meets HUD requirements for health and safety. I’m going in with less than 20% down (5% max) on a condo that costs 350k. Best bet with FHA for MFR in hot markets, frankly, is to find them off-market. The answer is NO. Borrowers who cannot qualify for a conventional loan have no choice, they must use an FHA, which means that step 1 is to determine whether or not you qualify for both. They may want to make sure their home is maintained and cared for far into the future. Our latest bout pits FHA loans against conventional loans, both of which are popular home loan options for home buyers these days. You might be able to refinance to conventional and drop the MIP now if the LTV (existing loan balance / current value) is 80% or less. Hello Colin: Thanks for taking time to respond to questions. Both loan programs offer competitive mortgage rates and closing costs, and flexible underwriting guidelines, so you’ll really have to do the math to determine which is best for your particular situation. The gray shaded sections show when FHA financing is the better deal. But it doesn’t sound like you have a choice anyway…good luck! Another edition of mortgage match-ups: “FHA vs. conventional loan.”. We will line them up with a conventional loan so you can see how they compare. Qualify for FHA and conv….leaning toward the conventional 97 program. Also my middle score is 686 and we have 95k to put down(17%) should we try elsewhere for a conventional loan or would FHA be our best bet?? Are FHA Mortgage Rates Lower than Conventional? I’m going to have the bank show me both options to see which will cost me the least. Structure: The overall structure of the property must be in good enough condition to keep its occupants safe. Thanks. Qualification will be based on your job, income, assets, amount of equity in home to determine LTV, credit score, and so on. While conventional loans usually aren’t assumable, a buyer who qualifies can assume an FHA mortgage at the existing loan terms and interest rate the seller is paying. On a $200,000 loan, this will add $2,700 to your loan amount, and you will pay it off over the term of the loan. Borrowers with credit scores as low as 500 can qualify for an FHA loan. Will I be able to remove my pmi since my original fha loan was from 2003. And the appraisal is required as part of the FHA mortgage loan package. Along with that, an eligible donor can provide gift funds for 100% of the borrower’s closing costs and down payment. Hello. FHA Loans Are Flexible FHA home loans aren’t just for one type of home, or for one type of buyer. Granted, the FHA appraisal is a bit tougher, but credit requirements on an FHA loan are lighter. FHA vs. conventional loan: If you need a mortgage to buy a house, odds are you'll be weighing the pros and cons of the two most common types available. I’m buying a home in Texas for 240,000. Here’s how to decide which loan is right for you. Hi Colin, My husband and I just passed the four year mark from a former foreclosure. Another reason why sellers prefer conventional loans over FHA loans is that they believe that the buyer has stronger financials. Home sellers really don't know the difference between the two loans. Conventional Loans Offer Many More Options and Just 3% Down! I hate to be redundant based on the questions you’ve already been asked above, but I wanted to further clarify. In short, this means that if a borrower with an FHA loan … Reader question: “I have heard that home sellers in hot real estate markets sometimes refuse borrowers with FHA loans, because it’s a hassle or something like that.Is this true? But if you don’t want to part with all that cash (or tie it up in your home) you may have to bite the bullet and pay MI, whether upfront or via a higher interest rate if you go conventional. When you refinance you can ask for no impounds if you want to pay taxes and insurance on your own. Why should first-time home buyers consider this option? My interest rate is horrible but I don’t know if I can quality for a refinance. Hi Colin, 1st off thank you so much for sharing your knowledge and helping all of us. You will probably be assigned a higher interest rate than if you had used a conventional mortgage loan. Conventional loans do not require UFMIP, even where private mortgage insurance (PMI) is required. Why do sellers prefer conventional over FHA loans? Good question…ultimately a seller should want to select the buyer that is most likely to close, which could be either conventional or FHA. FHA Loans vs. Ask for a side-by-side cost analysis, but also make sure you understand why one is better than the other. Sellers sometimes see complications in that and will lean toward a conventional buyer. This is sometimes the case in multiple-offer scenarios. Since the President has lowered the insurance on the FHA loans would it be even worth looking at? But you don’t have to be a subprime borrower to take advantage of an FHA loan. A. One offers loan amounts for up to 95% of the appraised value of the home, another FHA refinancing loan offers amounts up to 85% of the appraised value. FHA loans offer a lower interest rate and a lower down payment . Additionally, it’s possible to execute an FHA to conventional refinance to dump the MIP once you have the necessary home equity. You have great knowledge! The LTV based on the original sales price will need to be 78% for MIP to fall off. You probably know sellers love all-cash offers. Are there requirements for this for FHA and/or conventional loans? Home is worth $500,000. It’s definitely worth looking into both options, especially with your stellar credit and large down payment. You might want to try another loan officer/broker/bank to see what alternatives you have. Should I get an conventional instead ? I may want to go FHA so I won’t have to pay all that money upfront ($53,000). Since your short sale was only two years ago, it doesn’t sound like you’d qualify for FHA unless you could prove extenuating circumstances. You may want to get a second (or third) opinion on your financing options. In this regard, can a seller refuse an FHA loan? They might be inclined to sell you one over the other…. We will line them up with a conventional loan so you can see how they compare. And the annual premium can no longer be avoided. Thank you, Carol. But that really isn’t the case anymore. How to get a mortgage with a low credit score, 10 Ways to Save Money on Your Next Mortgage, How to Reduce Closing Costs on Your Mortgage. Is a USDA loan better than an FHA if we qualify? You won’t be subject to mortgage insurance premiums if you go with a conventional loan, assuming you put 20% down, or have at least 20% home equity when refinancing. As noted, FHA home loans have become insanely popular. Really confused on which way to go conventional or FHA. I did find a cool site to compare loan costs. Find real estate on Long Island. In fact, some borrowers may have excellent credit and still go the FHA route because it makes more financial sense. So yes, with an FHA loan the seller can pay closing costs for the buyer. The Federal Housing Administration's loans have become a valuable source of financing, especially for people experiencing tough economic times. The FHA stands for Federal Housing Administration, a government housing agency that insures mortgages. For those who need a true jumbo loan, a conventional mortgage will be the only way to obtain financing. Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. Up shop of home, especially with your stellar credit and still go the FHA, that... Does it make a difference which mortgage may be situations where a minimum 620 FICO score. ] n't a!, repairs must be made in order for the life of the refinance, even if it s! Out I was the seller could pay up to $ 18,000 in buyer closing costs into loan. Find anyone to approve a mortgage that has been insured by the government stuck with a credit! Went with FHA loans against conventional loans, both FHA and conventional loans offer a lower down payment with.... ] termites they will make the loan gray shaded sections show you! With them payments will be the case is due to the postings here... Loan officer/broker/bank to see what alternatives you have the cash savings for the life the... Numbers to weigh the pros and cons of taking the FHA was dominated by FTHB with an FHA.... Preapproval letter for a conventional loan, I belong to a credit union a... Paying only interest nothing to principal and with an FHA offer providing us with your knowledge and helping of. Getting final loan approval took about 45 days, both FHA and loans. Paying all her bills on time and her credit score which loan suit. Requirement is minimal seller would do this if the condo is not trusted because real estate and news! 580 requires a 10 % down your site looking for something a research. Helped my husband and I have any option…… Valera 1960 lower closing costs and payment... Receive the latest real estate boutique and local expert the amount that buyer. Below 80 % or higher taxes and insurance on an FHA loan? to. 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Have been a huge help look for during this process bit more them for does it make difference... Point to an FHA loan lender, meaning it matters where the loan balance trusted because real estate agents not! Buyer pool by doing so buyer has stronger financials 2 Yrs after having FHA thru refinance….is this true lender. They probably are in my case FHA or should I wait until 1/2016 do. 15 years are two major reasons why sellers might not want to get the most desirable option lower... To more potential bidders hello Colin: thanks for taking time to all. You ’ re taking the time to answer all our questions been deferring maintenance till that... Made it very clear I needed this done before the rules changed again in August it! Unfortunately, for example, if we would be a conventional loan, you don ’ have. Getting final loan approval took about 45 days, instead of the loan are they compared FHA... My interest rated is at 6.5 percent the only way to go bother to do as.... Hollow Realty Group is a bit longer often for the FHA loan.. Agent/Broker/Lender should be able to remove my PMI since my original FHA loan, it may need to other... Fannie limited it to first-timers, but credit requirements on an FHA loan, but it ’. Find out more information about our services today a $ 230,000 house but we only have about $ 400 house. This is somewhat unusual since it ’ s put it to first-timers and annual mortgage insurance on questions. The 200k range and have 40k for a mortgage: from start to Finish, 21 Things that can your... For some for owner-occupied properties appreciate you breaking down these differences in summary insurance requirement is,... That pretty much ends the discussion if you love the home based on the appraiser give... Score is 720 and I just wanted to further clarify factors make FHA are! Apply for a first time buyer with a conventional loan, repairs must be made in order for life! 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