Home Buying in Anaheim>Question Details

Joe, Home Buyer in Anaheim, CA

FHA vs conventional loan

Asked by Joe, Anaheim, CA Thu Sep 24, 2009

What would be the benefit for going with a conventional loan over a FHA loan? or the other way around. I've also come across loan programs through CalHFA, what is the difference between CalHFA and FHA programs? Are closing costs different for these loans? What should I expect for closing costs?

I'm looking to purchase a home in the 300,000 range around Anaheim. I have about 40,000 that I could put toward a down payment. Would it be wise to put down as much as I can or should I keep some money for future expenses and savings. (If I put down the 40,000 I will still have about 5 months of expenses in reserves).

Thanks

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9
Joe,

FHA loans and VA loans are not highly regarded by sellers - sad to say. A conventional loan has much more weight and consequently will give you a stronger offer.

Closing costs are related to the loan in some cases. They also include taxes, HOA fees, title fees, notary fees, escrow fees, etc.

Thank you for the questions.

Colleen
Broker Associate
DRE 01325265
http://www.mySanDiegoAgent.com
http://www.kw.com
0 votes Thank Flag Link Tue Jan 5, 2010
Joe,

FHA loans and VA loans are not highly regarded by sellers - sad to say. A conventional loan has much more weight and consequently will give you a stronger offer.

Closing costs are related to the loan in some cases. They also include taxes, HOA fees, title fees, notary fees, escrow fees, etc.

Thank you for the questions.

Colleen
Broker Associate
DRE 01325265
http://www.mySanDiegoAgent.com
http://www.kw.com
0 votes Thank Flag Link Tue Jan 5, 2010
Hi Joe,

As the others have said....the main difference is trying to get an FHA offer accepted. They take longer and the rules are changing in February....so listing agents are going to be fearful of them. But....I have gotten them accepted. Financing is important....but so is committment. Especially if you are talking about a short sale, listing agents are interested in making sure that you are going to be there for the long haul. This can make a big difference too.....tell the story. Make sure your agent is really selling you as a buyer and you improve your chance to get your offer accepted.

I always sell myself to the other agent....as well as our lender. I need to impress on the listing agent that they will enjoy working with me...that I will answer the phone and handle things professionally and quickly. In addition to your information, I send referral letters from other agents who have worked with me. Sounds backwards.....but it works. I also have your lender call and sell him/herself. Help the listing agent realize that you are solid financially and again...that the lender can get the job done. This helps as well.

I'd love to work with you if you have not already found an agent....shoot me an email and we can talk a bit more about the opportunities out there.

Karen
0 votes Thank Flag Link Mon Jan 4, 2010
An FHA loan is a good solid loan. The challenge is that the other offers that you are competing against may be cash or conventional financing. Given that the main reason deals fall apart these days is financing, sellers are looking for cash, conventional, FHA, VA in that order. I suggest that you speak with a loan consultant and a financial consultant. It would be my pleasure to refer you to those resources if you wish.

Cheers,

Colleen
0 votes Thank Flag Link Tue Sep 29, 2009
Joe, I just answered another question you had. The answer would be we would go with the loan that would have the best combination of the lowest rate and mortgage insurance. In your case the FHA may be the winner.
0 votes Thank Flag Link Tue Sep 29, 2009
Joe:

One other item that was not mentioned in any of the other posts is credit score requirements. Mortgage insurance, which will be required on any loan over 80% loan to value, is much harder to get on conventional loans, and therefore you will need a higher credit score to do a conventional loan. You sound like you have put much thought and planning into your home buying decision, so this may not be a problem for you. Currently, you only need a 620 FICO score for FHA loans, but may need as high as a 740 FICO to get a conventional loan with mortgage insurance. With many buyers who have 10% to put down, their credit score is the deciding factor in choosing one program over the other.

Good luck in finding your new loan and home. Dare to Dream.

Shel-lee Davis, CDPE
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
http://shel-lee.listingbook.com
0 votes Thank Flag Link Thu Sep 24, 2009
Hello Joe,
the big advantage of a conventional loan mostly has to do with your abilitiy to get your offer accepted. Some sellers will not even look at FHA loans because they feel that they are more complicated. There are also many investors that have been purchasing homes, fixing them up, and reselling them. FHA has a rule that the home must be owned by the previous owner for at least 90 days or they will not fund the loan. Because of this, many of these flip homes will not qualify for FHA financing. Its sad that many sellers do not give the same attention to FHA buyers as they do conventional buyers but it is the way things are now a days. There is lots of competition with buyers especially in starter homes. Most bank owneds will have 10-20 offers within days of being put on the market and banks will usually look at the offers with the most down payment as the most solid offer.

That being said, the advantage of an FHA loan is a lower down payment and lower PMI (mortgage insurance) costs. Even though many sellers and listing agents believe FHA loans are complicated and take a long time, this is actually not true. My loan officer can get an FHA loan done in 3-4 weeks. I think FHA got a bad name with Seller's because of all the inexperienced loan officers who have made them look like a big hassle. If you have enough for a down payment for a conventional loan and feel comfortable with the amount of money you have left in reserves than a conventional loan would be a good idea just because you will have a better chance of getting your offer accepted. But don't be discouraged if you decide FHA is a better route for you. With patience, you will find your perfect home either way. I am opening escrow today on a home for some first time buyer's of mine in Anaheim and they are using FHA financing.

Joe, I would love to work with you on finding your home and I can also refer you to a great loan officer. Even if you are just in the beginning stages and are not yet ready to go out and look, I can send you properties by email so you can get a better idea of what is out there. Give me a call or email. And Congrats on your decision to buy a home!
Theresa Struckmeyer
714-244-8761
theresa@orangecountyshortsalehelp.com
0 votes Thank Flag Link Thu Sep 24, 2009
At this point in time another advantage of the conventional loan over FHA is that with so many offers in that price range, the conventional offers are more often selected than the FHA offers even when you offer over the listed price. Recently I had two conventional buyers and one FHA buyer I was showing properties to. It took 3-4 offers to get a house for my conventional buyers and I am still trying for the FHA Buyer. We have been close. The last one we were #3 out of 17 offers. So that might give you an edge to perhaps get a house before the credit from the government expires for first time buyers.

We are all hoping that they will extend that but for now the deadline is Nov. 30th.

Regards,
Barbara Robbins-Olexa, Broker, e-Pro-Internet Certified, SRES(R)
L B Brokerage
714-296-7270
bstrealtor@aol.com
http://www.barbararobbinsolexa.com
0 votes Thank Flag Link Thu Sep 24, 2009
Hi Joe, Sounds like you've done some very careful planning and saving in anticipating purchasing a home. You're in a great position and it's a great time to buy! The largest difference between conventional and FHA/CalHFA is the amount of the down payment required. In your price range, the down payment on with an FHA or CalHFA loan would be 3 1/2% of your purchase price. With conventional financing, you would be required to have an minimum of 10% down, and that program will no longer be available after October 12th. A 15% down payment will then be required. In any of these scenarios, you will have private mortgage insurance (PMI). PMI is required is there is less than 20% down. CalHFA tries to find a way around that by using a "silent 2nd". This programs is more difficult to find, process and get accepted when written in an offer. The closing cost for FHA and conventional loans requiring PMI is virtually the same. One advantage to an FHA loan is that the monthly PMI payments are lower than on a conventional loan. It's sounds like you would really benefit from discussing this with a highly qualified mortgage broker. I have several that I could refer you to, and would be happy to do so and help you find your new home in Anaheim. When looking in Anaheim, keep in mind that homes east of State College are considered more desirable and hold their value better. I'd love to help! Please give me a call at 714-283-6630 or email at karen@karenfenn.com. Thank you and good luck! Karen Fenn
0 votes Thank Flag Link Thu Sep 24, 2009
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