why do sellers prefer conventional over fha

But again, have him/her sit down and really go through the numbers to weigh the pros and cons. Buyers, though, can help their cause by agreeing to an "as is" appraisal, for one. It’s possible that conventional rates can be .375% to .50% (or more) higher than FHA. I want to do a cash out refi. my agent has other back up offers on stand by, in case my contract falls thru. They may want to make sure their home is maintained and cared for far into the future. With FHA, you have to pay MI upfront AND monthly for the life of the loan (in most common scenarios). Can a credit union do a FHA loan if the condo is not FHA approved? It depends where the broker places your loan. FHA and Conventional Loans Both Offer a Great Low Down Payment Option, FHA Loans Good for Those with Poor Credit, FHA Loans Hugely Popular with First-Time Buyers. Some sellers care about the future of their home, especially if they built it and are the original owners. Do I still have to pay mortgage insurance if I choose a FHA loan ? I have always gone with friends but don’t know if I am getting the best rates. 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. If so, how does the MIP and PMI of a FHA loan compare to just the PMI of a conventional loan if you have a 750 credit score? Lower credit score needed (580 for max financing), May be easier to qualify for than a conventional loan (higher DTIs allowed), No asset reserve requirement (for 1-2 unit properties), Gift funds can cover 100% of closing costs and down payment, Streamlined FHA refinances are fast, cheap, and easy, Slightly higher minimum down payment requirement (3.5% vs. 3%), Subject to mortgage insurance (for full term of mortgage in many cases), Must pay upfront and monthly mortgage insurance premiums, Fewer loan type options than conventional loans, Only available on owner-occupied properties, Many condominium complexes aren’t approved for FHA financing, Loan limits are lower in more affordable regions of the country, Generally only allowed to have one FHA loan at a time, Lower minimum down payment requirement (3%), No mortgage insurance requirement if 80% LTV or lower, Can cancel existing mortgage insurance at 80% LTV, Can be used on all property and occupancy types, No maximum loan limit and conforming limit higher than the, More lenders to choose from (nearly every bank offers conventional loans), Easier qualifying guidelines for those with student loans, Higher credit score requirements (minimum 620 credit score), May be more difficult to qualify than FHA loan, Mortgage insurance still required for loans above 80% LTV, Possible prepayment penalty (not common these days). Good question…ultimately a seller should want to select the buyer that is most likely to close, which could be either conventional or FHA. Why do sellers prefer conventional loans? 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. Also, it’s possible for someone to get an 80% first mortgage via the conventional route and a second mortgage while avoiding PMI entirely. FHA loans also have stricter guidelines for the seller your buying the house from . And FHA financing opens the door to more potential bidders. As seen in the chart halfway down the page, MIP (for FHA loans) doesn’t change based on credit score, but PMI (for conventional) does get cheaper for those with higher credit scores, so generally FHA loans are less attractive for those with high FICO scores. This is why the FHA has become a lot less popular. While FHA loans have come a long way and pose very few problems for sellers, many still hold back. Here is mine – I am looking to refinance my home. Good luck! Copyright © 2006-2021 - The Truth About Mortgage.com, Powered by the lovely Wordpress platform. It’s definitely worth looking into both options, especially with your stellar credit and large down payment. I wouldn’t bank on FHA rates being higher, so if reality turns out to be different, it can certainly change the outcomes in the table above. Granted, the FHA appraisal is a bit tougher, but credit requirements on an FHA loan are lighter. Great site and thank you for your many posts responding to so many people! And thank you in advance. Could be low credit scores or some other issue, or no issue at all. My income is only about 60k per year though since I work in education. Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. Another plus to conventional mortgages is that they’re available at pretty much every bank and lender in the nation. The Federal Housing Administration's loans have become a valuable source of financing, especially for people experiencing tough economic times. Fannie Mae is one of the two government-sponsored enterprises (a quasi-public company) along with Freddie Mac that issues conforming mortgages. What is the definition of movement in science? 2. Where can I find out more information about my situation. There are various requirements, such as a max LTV, minimum credit score (generally 620), and so on. Does my loan type saying Conventional Without PMI mean that I can have the mortgage company change my payment amount to only principle and interest payment? 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. 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. His asking price is a lot less then what it’s valued at. I want to purchase a home in the 200k range and have 40k for a down payment. You might ask, “Why would I apply for a conventional loan when I can put less money down on an FHA loan?”. Let me make it very clear; the FHA home loan program is only good for owner-occupied properties! You may want to get a second (or third) opinion on your financing options. You need to determine when the monthly savings outweigh the upfront costs…so if you stay in the loan long enough to cover the upfront costs, you’ll begin saving money each month. if yes what are the requirements thanks. But borrowers can use multiple FHA loans for purchasing or refinancing a home loan. Contact us for more information about our services today. Please advice us thank you, Colin. We are first time home buyers and are only looking at condos around 110-130k and we both have credit scores above 780. What is the downside of an FHA … The realtor said that it has to be a conventional loan, however, I belong to a credit union. Most borrowers who use this program in 2016 will end up paying 0.85% of the loan balance. 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. You’ve really got to do the math to figure that out. 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. And who knows where conventional rates will be in a year. Meanwhile, Fannie Mae will allow the actual income-based repayment, even if it’s $0. Please advise. My question is, Can I roll over down payment and other closing costs into the loan if I have no down payment? Hi Colin, thank you very much for your help, awfully kind of you! It’s possible to go conventional with just 5% down (or even lower in some cases), though it might be difficult to find such a lender at the higher loan limits you mentioned. In fact, some borrowers may have excellent credit and still go the FHA route because it makes more financial sense. I had to do a short sale on a rental property in 1/2012 due to the renter totally destroying the property making it impossible to fix up and rent again or to sell for the value. Will I be able to remove my pmi since my original fha loan was from 2003. This reduces my current payment by about $400. However, the FHA recently lowered annual mortgage insurance premiums by 50 basis points, which could make FHA loans a cheaper option in many cases. 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