Financing in 08823>Question Details

Balaji, Home Buyer in Parlin, NJ

FHA or non-FHA?

Asked by Balaji, Parlin, NJ Fri Sep 3, 2010

I am looking at different loan options, do i go for FHA or non-FHA? what are the pros and cons? If i take an FHA loan will the closing costs be low? Will i not be able to rent it out in future if i do FHA?

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Andrew & Elena Ollick’s answer
First of all, there is absolutely no reason that you can't rent in the future if you have an FHA loan.

Secondly, in deciding whether to FHA or not to FHA you need to look at your own finances.
Do you have 20% down? If the answer is no, then FHA is your own viable option, because conventional high LTV programs have much higher rates, as well as MI.

If you do have 20% down and don't mind putting it down, then of course you should go conventional: No MI, the lowest rates you can get for any type of loan product.

The closing costs will be slightly higher on FHA, since you'll have to pay upfront mortgage insurance (2.25%) which can be put on top of the loan.

So put simply: if you have 20% down- go conventional, if you don't FHA is a better option for you.

Elena Ollick
Amerivest Realty
Faith Home Loans
239-206-4500
eo@oceanhomesrealty.com
skype: napleshomes
http://www.andrewollick.com/realestateblog
1 vote Thank Flag Link Fri Sep 3, 2010
BEST ANSWER
FHA is a great loan option. Here is a quick breakdown of FHA versus Conventional:

Minimum Down Payment = 3.5% FHA, 5% Conventional
Mortgage Insurance:
Up-Front = 2.25% (until Oct 4th, then 1%) FHA, 0% Conventional
Monthly = .55% (until Oct 4, then .9%) FHA, .94% Conventional (may vary by area)
Qualifying = More forgiving FHA, Less forgiving Conventional
Credit Score = 500 Min Score (although investors normally require 620) FHA, 660 (with less than 20% down) Conventional

What I normally recommend, based on current MI charges, is that if you plan to put less than 10% down, FHA is a good option providing less down with a lower payment compared to Conventional. A lot of people are looking to conserve cash with the state of our current economy. A good way to do that is with less money down (FHA @ 3.5%) and with the FHA payment (less than Conventional when comparing minimum down, due to MI charges up to Oct 4).

If you have 10% or more down, Conventional is the better option due to the change in mortgage insurance charges. Instead of .94% it may drop to about .64%. That helps to drop your payment and make Conventional loans the better option. At 20% down Conventional is a must. Conventional with 20%+ down does not require mortgage insurance while FHA loans will.
Web Reference: http://www.LendingAHand.com
0 votes Thank Flag Link Fri Sep 3, 2010
you can rent out either way.. conv or FHA - later down the road.. both are most likely looking at owner occupied... better deal... FHA has cost associated with so have your lender run the nubmers and know your options... both are good - one may be better for you and your money situation... good luck...
0 votes Thank Flag Link Tue Sep 7, 2010
Totally depends on down payment and credit. FHA loans can be a great or only option if you have no more than 3.5% to put down and lower credit. However, FHA can cost more in MI insurance or upfront premiums. But, if it is your only option it is the best. If you are not limited you may be able to afford more house with the same payment because of variances in the terms of the different programs. I recommend speaking to some competent lenders that can give you the full spectrum of what is available. I also might compare a bank, broker and correspondence lender(Mortgage Banker) just to see the difference. If you need some recommendations, just let me know and I'll provide you with a list of my favorites.
0 votes Thank Flag Link Tue Sep 7, 2010
FHA and Conventional loans have the same requirement for renting out the property after closing. Basically, your INTENT has to be to live in the home for the next 2 months following your purchase. In fact, most lenders will require you to sign something at closing which states that is your intent.
Web Reference: http://www.lendingahand.com
0 votes Thank Flag Link Fri Sep 3, 2010
Can i rent out the property if i decide to move to a bigger house?
0 votes Thank Flag Link Fri Sep 3, 2010
Below is a site for your research. There are a number of scenarios why you would or wouldn't use FHA.
It may be best to speak with your banker for your own particular circumstance.
0 votes Thank Flag Link Fri Sep 3, 2010
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