I am Planing to go for a 300k home, I can try to put 10% down, my confusion is whether to go for FHA or 10 down%, conventional?,

Asked by Alenb, 94117 Wed Jul 21, 2010

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48
Jessica Bate…, Agent, Beverly Hills, CA
Mon Oct 28, 2013
You can get an FHA loan with 3.5% down most conventional loans need 20%. I have client's who have got approved and received a good rate at The Lenders Network I would check them out they can give you some options..
2 votes
Gregorio Den…, , San Diego, CA
Wed Jul 28, 2010
Note to REALTORS who have answered this question:

1) PMI stands for PRIVATE mortgage insurance. PMI is NOT what is on an FHA loan, FHA loans are not PRIVATELY insured. PMI is a company; it's like calling bathroom tissues Kleenex, they are not all Kleenex. FHA loans have MIP. Please use the correct terminology or your clients end up confused when they actual speak with a reputable loan officer.

2) FHA loans DO NOT require perfect credit as Micky and Jeff state. In fact, they do not penalize you for having imperfect credit as a conventional loan does.

The best advice is to not give advice if it's incorrect
2 votes
Benny Smith, Agent, Pittsburgh, PA
Wed Aug 4, 2010
This is not a hard question. I have had clients who were qualifed VA, FHA, and Conventional. There is no pat answer even if you are putting down 10%.
Have a reliable lender work up your closing costs, prepaids, and total PITI, principle, interest, taxes and insurance. Dont forget about PMI an funding fees. Only when you set down with these figures will it make sense which way to go. Also the best answer may change over time. So the best answer today my not be the best answer six months from now.
1 vote
Dallas Texas, Agent, Dallas, TN
Sun Aug 1, 2010
You need obtain all the figures and compare apples to apples ALSO confer with CPA for your best option and tax benefits

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
1 vote
Rudy McDowell, Mortgage Broker Or Lender, Bloomfield Hills, MI
Wed Jul 21, 2010
Hi, Alenb

You need to sit down with a LO/lender knowledgable and capable in both FHA and Conventional financing to determine whats best for you based on your credit score, liquidity, how long you're planning to be in the home, if and/or the amount of seller concession you may need, present equity in property of interest and state of it specific market area, type of home, ect...At this stage, given how impacting of a decision this will be on your finances, lifestyle and possible family, and regardless of how helpful and informative our general responses may be, you now need to be in front of a reputable LO you can trust .
1 vote
Jason Chapin, , San Francisco, CA
Wed Jul 21, 2010
Hey AlenB -

There are good responses here, but nobody mentioned what could actually be an excellent alternative to the constraints you think you face... If you plan to buy in San Francisco and you currently live or work in SF, then you may very well qualify for DALP assistance.

DALP stands for the Down Payment Assistance Loan Program (forgive the odd acronym - I'm not sure why they don't refer to it as DPALP). DALP is administered by the Mayor's Office of Housing and acts like a silent second during your purchase. Essentially, if you qualify, DALP covers 20% of your purchase price up to a maximum amount of $100,000.

After you close there are no payments due for 40 years. Once you sell, you owe the funds back plus a relatively equitable share of your price appreciation along with it. For example, if one bought a place for $400,000 and used $40,000 in DALP funds (10% of the purchase price), then 10% of the total appreciation upon sale would be due alongside the original balance.

Hope this makes sense. This is a great alternative because it helps you avoid mortgage insurance AND gives you access to the best conventional financing. If you'd like more information, look here: http://sf-moh.org/index.aspx?page=265

Good luck to you!

Jason Chapin
McGuire Real Estate
415-420-1143
jchapin@mcguire.com
1 vote
Gregorio Den…, , San Diego, CA
Wed Jul 21, 2010
" when there are multiple offers on a property, sellers are tend to give preference to offers with conventional financing over FHA. Good luck!"

Well as an agent, now would be a good time to educate them as to why that methodology does not make sense. If a borrower has a 680 score and putting 10% down, an FHA loan is a slam dunk whereas a conventional loan is 2 hurdles and a steep climb.

Isn't it about time that agents stop blindly repeating this? I keep hearing sellers prefer this and sellers prefer that, with no logical reasoning behind it. Aren't there agents out there that can say; well Mr or Mrs seller, let me explain why that might not be such a good plan ... ?
1 vote
Gregorio Den…, , San Diego, CA
Wed Jul 21, 2010
Tyler says:
"3. 30 year fixed rate (5.250% estimated)"

Posting rates as an advertisement or enticement without an APR is a TILA violation.
1 vote
Gregorio Den…, , San Diego, CA
Wed Jul 21, 2010
"This is a no brainer. If you qualify for a conventional loan, you should take it. "
"I believe your offer is not as strong with an FHA loan. "

The only reason the offers are not as strong is because agents like you convince their clients that it's not as strong. It makes no sense; since FHA is easier to qualify for, it should be the no-brainer that an FHA buyer has a better chance of closing than a conventional buyer at this LTV. There are more restrictions on a conventional buyer at 90% than an FHA buyer. If the seller is just asking whether it's conventional or FHA and the agent is not advising them of the differences, they are doing a huge disservice to them.

Most loans funding these days are FHA, why this stigma is still out there is a mystery. So many well qualified borrowers, especially in the San Diego area where average prices are in the high 600K to low 700K range, are opting to stay liquid with cash reserves and opting for FHA financing to get the best rates while investing their money in other areas.

FHA is obviously not always the better choice, but to say that conventional is, would be a huge mistake and terrible advice.
Web Reference:  http://WeFixRates.Com
1 vote
Kawain Payne, Agent, Seal Beach, CA
Mon Jul 15, 2013
Hello Alenb,

congrats on buying a home of your own!!!

Best to have your lender workup the cost associated with BOTH FHA and Conventional loans using the 10% down model.

I had a client who was trying to decide FHA vs Conv. she had credit scores in the 800+ range. She was able to get a 5% down conventional and her closing cost were less than if she had gone FHA with 5% down.

Best of Luck to you!!!

Kawain Payne, Realtor
Prudential California Realty
0 votes
Jhan115, Home Buyer, Oakland, CA
Tue Aug 10, 2010
I worked with a guy at Reliance Financial by the name of Daniel who helped me with my 350k purchase. Give him a call and he'll breakdown the options for you. Everything took about a month. I definitely recommend him. His number is 510-552-3119. Cheers
0 votes
Hope Fogarty, Agent, 18210, PA
Sat Aug 7, 2010
Putting 10% down on a conventional loan, you really need outstanding credit. FHA would be the best and easiest way to go in your situation.
0 votes
Robert Savage, Agent, Bakersfield, CA
Fri Aug 6, 2010
Your best bet is to find a trustworth loan officer. 10% down conventional loans are available depending on your credit but if you are putting down less than 20% and FHA loan might be cheaper.
0 votes
Lisa Kraft, , Chandler Heights, AZ
Thu Aug 5, 2010
I would go with the FHA loan for the reason that they require less down and if some time down the road you want to sell rhis home, s far as I know that loan is assumable and therefore may be easier to sell. I used to like conventional loans but lately FHA is the better choice as far as I am concerned as a Realtor but it;s always good to consult a good loan officer.
0 votes
Gregorio Den…, , San Diego, CA
Wed Aug 4, 2010
Monir says:

"Plus you can get 3.5% down and with Nehemiah or other downpayment assistance you can get to about 0% down. "

Absolutely untrue! On July 30, 2008, President Bush signed H.R. 3221 - Housing and Economic Recovery Act of 2008. Section 2113 of the bill prohibits seller-funded DPA (Down Payment Assistance) for loans backed by the Federal Housing Administration. Nehemiah was one of those programs and is no longer legal.

Please speak with a licensed, up-to-date loan officer about your financing options.
Web Reference:  http://WeFixRates.Info
0 votes
Monir Mamoun, Agent, Denville, NJ
Wed Aug 4, 2010
FHA loans are assumable and there is no prepayment penalty. Plus you can get 3.5% down and with Nehemiah or other downpayment assistance you can get to about 0% down. You have 2.25% added plus MIP ("mortgage insurance premium"). With a conventional loan it is probably not assumable and there may be prepayment penalties, plus more down payment is typically required, plus you have PMI ("private mortgage insurance").
0 votes
Sergio Herna…, , Naples, FL
Wed Aug 4, 2010
FHA = Higher monthly payments, but smaller downpayment

Conventional = Lower monthly payments, but greater downpayment

If you can live with the higher monthly payments and can use the extra cash for other things, FHA might be the best way to go.

If a lower monthly payment is more appealing, a conventional loan might work best.
Web Reference:  http://www.golftobeach.com
0 votes
Tom Englert, , Port Saint Lucie, FL
Wed Aug 4, 2010
You will need FHA or VA financing with the majority of your 10 percent down used for closing costs and prepaid expenses....don't roll them in to the loan it will casue the home to cost an additional 30 percent over the life of the loan. The better approach is to get the best price possible, in a home that offers the best condition. Make multiple offers simultaneously so you get to choose not the seller.
0 votes
Pat & Steve…, Agent, Westlake, OH
Sun Aug 1, 2010
You have received many answers. What you should do is talk to local lenders, both local banks and a mortgage broker, to find out what your payments will be for both FHA and conventional loan programs they have. Make sure you can afford the payments. Remember that you don't want to be tied to a house payment. You need to live your life, go to a movie, go out to dinner, etc. Sometimes asking a question on Trulia can send a mixed message. Go to your local lenders for advice.
0 votes
Merritt Noel, , Denver, CO
Sat Jul 31, 2010
With 10% down you should be able to get a 1st mortgage to 75% Loan to Value with a small 2nd mortgage making up the additional 15% LTV = total 90% CLTV. This will result in the cheapest monthly payment allowing you to circumvent the private mortgage insurance that is required on mortgages over 80% LTV. Seconds are slowing coming back into the market and are great options for those that are putting down 5-10%. For all of you that are asking the question...Yes, I have a investor who is willing to get to 95% on purchases with rates below 8% on a 20 year fixed.

A couple addition reasons to consider doing a 1st and 2nd, is will not have to fund the 2.25% Up Front MIP that FHA finances into the loan balance. You do have to have 660+ credit to get the 2nd mortgage. not sure where you are with credit score. But if you have it ask your lender about if he has investors for 2nds.

Good Luck in your home purchase
Web Reference:  http://www.almortgageinc.com
0 votes
Gregorio Den…, , San Diego, CA
Sat Jul 31, 2010
Herb Alston said: "I've closed a few homes under $500K with buyers who had less than 20% down. If you don't have 20% down, consider the 3% down programs. Very good loans, ..."

Herb, you obviously did not read my previous post! Please stop saying Mortgage Insurance "aka PMI". Mortgage insurance is a thing, PMI is a brand of it. Please take a real estate finance class.

Also, please tell me what 3% programs you are referring to that you have closed. I don't seem to have that in my arsenal and am very interested.
0 votes
Herb Alston, Agent, San Francisco, CA
Sat Jul 31, 2010
Alenb,

I've closed a few homes under $500K with buyers who had less than 20% down. If you don't have 20% down, consider the 3% down programs. Very good loans, There's lots of stuff out there (not many single family homes under $300K). Since you're not putting 20% down, you will most likely have to have mortgage insurance (aka PMI); you're probably better off with more cash in the bank.

Keep the 7% for reserves. I'm not a mortgage guy, I'm a Realtor but since I have closed a handful of deals with people under $500K and minimal down payments lately, you do have options.

Good luck in your search.

Herb
0 votes
Lisa Schleig…, Agent, Naples, FL
Sat Jul 31, 2010
Dear Alenb,

You should explore all these options to see if you qualify for any, or all. Compare all programs you qualify for and see which works best for you on a monthly out of pocket basis.

If you are looking in the Naples, Florida, area, please feel free to contact me with any additional questions or assistance requests.

Lisa Schleiger
cell: 239-571-0001
0 votes
Sylvia Barry,…, Agent, Marin, CA
Fri Jul 30, 2010
I think you should talk to your mortgage broker about the pros and cons of either.

He/she should be able to give you advise according to your specific situation - the interest rate, points to pay (or not), credit back, mortgage insurance, spcific fee associated with each, ...,etc.

You can then weigh that against your specific situation and long term goals before deciding which way to go.

Not knowing the specifics about your situation, it'd be very difficult to give advise.

Best,
Sylvia Barry, Marin Realtor
Frank Howard Allen Realtors
Web Reference:  http://www.SylviaBarryRE.com
0 votes
Pacita Dimac…, Agent, Oakland, CA
Thu Jul 29, 2010
Here's a good blog that talks about 7 top reasons to get an FHA locn
http://kcmblog.com/2010/07/29/the-top-7-reasons-to-consider-…
0 votes
Elba call.e…, Agent, Victorville, CA
Thu Jul 29, 2010
It would depend on your Real Estate goal? Let me know if I can help.
0 votes
Jeremy Silve…, , Tucson, AZ
Wed Jul 28, 2010
It is best to speak with a loan officer to determine what you qualify for, the terms and conditions of various loan options may direct you to the proper loan program based upon your credit score ,debt ratio, and job history.
0 votes
Gloria Adams, Agent, High Point, NC
Wed Jul 28, 2010
One thing you might consider since you do not have the extra 10% for a down payment to avoid the private mortgage insurance is, in your offer, ask the seller to pay the PMI for you. Not only will that save you $$$ in closing costs, but will also save you $$$ in your monthly mortgage payment.

Always, consult with a mortgage loan officer for the % amounts a seller can pay for you with either loan program-FHA or Conventional. Now is definitely the time to make a purchase!
0 votes
Vanda Greenw…, , Bethesda, MD
Wed Jul 28, 2010
Yes you should consult with a loan officer with a direct lender. One thing to consider is that with FHA you must add PMI to your payment.
Check out your options in advance of looking for your new homes. Once you find the one you want you will not have the time to shop because the first week after you ratify your contract will be full of activities like Home Inspections etc.
0 votes
Micky McKinn…, Agent, Hanover, MA
Wed Jul 28, 2010
I woulfd definately go through FHA since they seem to be lending more consistently. If your credit is not outstanding you can have a problem. If you want a further explanation contact me and I will explain fully.
deyoungm@raveisre.com
0 votes
Al Zambrello, , Avon, CT
Wed Jul 28, 2010
Normally it is better to go FHA because the rates are better and
less is required down. However, there may be limitations due
to your income or other restrictions. Contact me and I will
explain. Al apzam@yahoo.com
0 votes
Jeff Brady, Agent, Cape Coral, FL
Wed Jul 28, 2010
Alenb

Either one is good. FHA will make you jump through more hoops but they seem to be the only programs lending on a more regular basis. The only problem that people have is that you have to have great credit. or they wont even look at you.
Good luck
Jeff Brady
jtbcorporation@yahoo.com
0 votes
Christopher…, , San Francisco, CA
Thu Jul 22, 2010
Hi Alenb,

I would consult several reputable Mortgage Advisors on this matter. If you can find a 10% down Conventional Loan with terms that are desirable and you meet the lenders underwriting requirements, this is probably a better option. BUT...if youre credit score is not high enough for a conventional loan, FHA is the way to go. They have less strict standards but again, every scenario is different and has pros and cons for your wallet.

Consult a few Mortgage Advisors and request they explain the pros and cons of each option they present until you understand the effect of what you choose. They should want to cure your confusion as their service to you.

Best of luck! Feel free to email or call if you need additional information to find a great Mortgage Advisor.


Christopher Pohlman
DRE 01838445
1.888.669.8881 Toll Free
415.894.2469 Cell
Christopher@YourNewRealtor.com
0 votes
Wed Jul 21, 2010
Alen,
I think the best thing to do is shoot Pamela Lamarre an email. She's the best.

plamarre@sbcglobal.net
Web Reference:  http://www.gregorygarver.com
0 votes
C2 Financial…, Mortgage Broker Or Lender, San Diego, CA
Wed Jul 21, 2010
That is a great question. I put together a total cost analysis showing various options for clients which compares an FHA loan with Conventional and compares the costs over a 5 year period. Also, with Conventional the MI(mortgage insurance) requirements are much more stringent in terms of credit scoring along with debt to income requirements. Conventional lenders have to go with private MI companies and each one has their own set of rules to abide by. With FHA the mortgage insurance is issued out by HUD and this type of loan is the only government backed home loan in the US.

FHA underwriting guidelines have much more flexibility. However, the appraisal process is more stringent since FHA requires that the appraiser to note any health & safety items that need to be corrected and the repairs or replacement must be made prior to the close of escrow. Many difficult files that weren't able to close on the Conventional route have had great success closing going FHA. Both type of loans have their pros and cons.

Regards,
Shawn
0 votes
Matthew Goul…, Agent, San Francisco, CA
Wed Jul 21, 2010
Hi Alenb,

You need to meet with your mortgage broker and Real estate agent to work out what is best for you and your offer. Sellers and listing agents should not consider FHA loans a bad thing or less favorable but some will. This is why I suggest meeeting with both people at the same time.
Not only can FHA loans be better for some buyers, the offer needs to have the terms set out so not to scare a seller, also a great cover letter from the Broker and RE Agent can remove these fears, showing your position in a positive light. They RE agent should also be able to review the property you are looking to purchase and give you an idea if the condition is likely to raise flags for appraisers.
I have had clients who have had great results with FHA.

Matthew
0 votes
Lisa Kraft, , Chandler Heights, AZ
Wed Jul 21, 2010
I would suggest that you talk to your lender what the best procedure would be.
0 votes
Red, , San Francisco, CA
Wed Jul 21, 2010
Just wanted to add to all the answers that from seller's side, when there are multiple offers on a property, sellers are tend to give preference to offers with conventional financing over FHA. Good luck!
0 votes
Pacita Dimac…, Agent, Oakland, CA
Wed Jul 21, 2010
Did you know that an FHA loan is assumable?

If you get a really low interest rate today....tomorrow, that interest rate will be so very attractive to potential buyers especially when interest rates rise. http://mortgage.lovetoknow.com/Assumable_Home_Loan

Why is that important? Presumably at some point in time, you may want to re-sell the property (especially since on the average, people stay in their homes 5-7 years before they move again). So the assumable loan could be an extra incentive for them to buy yours.

The only challenges we've faced with FHA loans is how strict they are. However, if the seller accepts the offer knowing that the buyer is getting an FHA loan, the seller should expect that there may be specific conditions that the FHA will require before the loan can be approved.

In some cases, we've managed to have the seller complete certain repairs to comply with FHA's guidelines. When that happens, we don't mind using FHA loans at all, and find that the hassle is so very worth it.
0 votes
june, Agent, San Francisco, CA
Wed Jul 21, 2010
This is a no brainer. If you qualify for a conventional loan, you should take it. FHA will add 2.25% on the loan amount for mortgage insurance, not to mention the appraiser may find problems with the house which the seller will have to fix and the seller may choose not to fix them. I believe your offer is not as strong with an FHA loan. Rates are about the same for both types of loans.
0 votes
Barbara Van…, , Folsom, CA
Wed Jul 21, 2010
Good question Alenb -

To help you decide which financing option is best for you will depend on a few things. Your qualifying FICO score will play a big role. With a FICO score of at least 660, there will be no FHA or lender overlays which means you will qualify for the best rate available and only have to put 3.5% down. With a 90% TLV conventional loan, you will need at least a 720 FICO. Since the mortgage insurance is "private" and depending on the lender, you may need to meet an even higher FICO threshold.

A good loan officer will put both options side by side with your qualifying factors and help you make your best decision.

All the Best,
0 votes
Lawrence Lud…, , Cherry Hill, NJ
Wed Jul 21, 2010
For the FHA Loan, the bottom 2 answers do not mention the following: There is a roughly 1/2% of the Mortgage amount (.0055, if you want to be technical) added to your monthly payment (as well as the 2.25% payable at closing mentioned below) so for a 270000 loan you can do the math. $270,000x0.0055) added to your payment UNTIL the home reaches 80% of Valuation (whatever that is, since that Valuation can be more of an opinion instead of fact).
0 votes
Sue Florence, , San Francisco, CA
Wed Jul 21, 2010
I agree with the other two responants. Assuming you qualify for both, you're going to be paying monthly mortgage insurance with either type of loan. FHA has the 2.25% upfront fee that most folks choose to finance. The increase in payment is generally not that significant. The question is cash flow. FHA allows for a minimum down payment of 3.5% and the interest rates are generally at least .125% lower than conventional rates.

Good luck. The bottom line is you're in a win-win situation in that property prices are still low and interest rates are fantastic.
0 votes
Fred Glick, Agent, Mountain View, CA
Wed Jul 21, 2010
I would go conventional except if you do not qualify for convetional financing.

Also, your agreement of sale has probably specified what type of financing you are going for and if you chose not to go FHA, then you can 't ask the seller to let you go to FHA.

Talk to your mortgage broker and/or real estate agent.
Web Reference:  http://fglick.com
0 votes
Martha Orozco, Agent, WESTCHESTER, IL
Wed Jul 21, 2010
The difference between FHA & Conventional is on a Conventional you put more down and unless you put 20% you do not pay PMI and if you only put 10% down the PMI is higher than a FHA. FHA is less down 31/2 and PMI is not as expensive. So it really depends on what your needs are. Always check with a bank or lender regarding any loan questions they are the experts on that.
0 votes
Keane Ng, Mortgage Broker Or Lender, Renton, WA
Wed Jul 21, 2010
It depends on credit and your income-to-debt ratio. If your credit is 720+ and your debt ratio is under 41%, conventional is probably the better options. There are some very unique PMI options that are much cheaper than FHA premiums for strong borrowers.
0 votes
Gregorio Den…, , San Diego, CA
Wed Jul 21, 2010
You can do either. If your credit score is low, it may benefit you more to go with an FHA loan. FHA does not penalize you for the low score (above 620) as a conventional loan would and the mortgage insurance is a bit less but there is a 2.25 Up Front Mortgage Insurance Premium that is usually financed into the loan amount. If your credit score is in the 700's, a conventional loan may be the best choice since you don't have to pay the 2.25% Up Front Mortgage Insurance Premium. There are pros and cons for both, you will want an experienced loan officer to show both options side by side and explain the differences.

Gregorio Denny
Tripoint Mortgage Group, Inc.
800-335-6897
Web Reference:  http://WeFixRates.Com
0 votes
Lance King, Agent, San Francisco, CA
Wed Jul 21, 2010
Alenb,

The best thing for you to do is speak with a lender so you can review your options as FHA loans require less down but have higher closing costs. We have a lender we work with regularly who does a lot of FHA loans as well as conventional and would be a good source of information. Send an email to lance@fixedrateproperties.com if you would like a referral.

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes
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