FHA is great, but don't forget conventional options, too!

I know that FHA, and other government products, have been all the rage lately due to difficulty in getting conventional loans and conventional mortgage insurance, but I think that a lot of mortgage originators have forgotten that there are still good conventional loans available without the high down payments frequently associated with them. For cost conscious borrowers, this can be especially important, as conventional loans do not require the high upfront mortgage insurance or guarantee premiums associated with government programs.

In most areas, well qualified first time homeowners can get financing at as high as 97% of the purchase price of their new home. While monthly mortgage insurance with this option is a little bit more expensive than FHA monthly mortgage insurance, the savings of 1.75% of the loan amount in upfront mortgage insurance premium is significant. For areas that don’t allow 97% financing, 95% financing is still available with conventional loans.

Interest rates for conventional loans like this are comparable to FHA for most situations, especially when making a down payment of 5% or more. The big difference is credit requirements. FHA requires only a 620 credit score, while getting the best rate on a conventional loan requires a score of 740 or higher. There are some differences in appraisal and income requirements, so make sure you know your score and that you’re getting all the options available.

If you would like a second opinion on your financing, you can reach me any time at (401) 263-8655.