Lastly, sellers obviously want to get the most money for their home. Appraised value is $350k, have $245k left on prior mortgage, have a credit score of 780. Another negative with FHA is that sellers sometimes presume that it means that the borrower has credit problems, since FHA has more relaxed credit standards. Underwriting is one of the biggest variables. 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? What do you suggest? We just purchased a house with an FHA loan. As far as selling a house to an FHA buyer, you are not putting yourself at any greater risk than if you sold to a buyer with a conventional loan. Loan officers are confusing me because each seems to want to push me in varying directions and I don’t feel like I can get a straight answer. It just depends where interest rates are in two years and if you still qualify for a mortgage…you never know what circumstances may change. But they’re mostly used for home buying anyway. As far as which loan to pick, there are now conventional loan options with just 3% needed for down payment via Fannie and Freddie, which is less than the 3.5% the FHA asks for. 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. Why a buyer would choose an FHA loan over a conventional loan: There are several reasons a buyer would choose an FHA loan over a conventional loan. What the loan rules DO say is that FHA financing is not permitted for homes that have been owned for a very short amount of time (up to 90 days) and returned to the market. Want a loan for $260,000. Still would put down at least 3-4% on a USDA, just wondered if those numbers come out better. Mortgage Insurance Premiums - Two of Them. Right now, about 15% of home sales in Santa Clara County are all cash, and sellers would far rather deal with an offer … While conventional loans usually aren’t assumable, a buyer who qualifies can assume an FHA mortgage at the existing loan terms and interest rate the seller is paying. All FHA loans have mortgage insurance now, though not all have it for the life of the loan. Many borrowers with FHA loans eventually refi to conventional loans to get rid of the mortgage insurance, and that’s sound logic. I have an existing FHA loan on my primary residence. be very careful though , brokers prefer you to go conventional because they make more money on them . If rates and costs were low, the FHA would be inundated with loan applications, as it was before their most recent cost increases. He said this was one of the new changes. Q. The main selling point of an FHA loan is the 3.5% minimum down payment requirement coupled with a low credit score requirement. I do not want to pay PMI though. First, if the property has safety issues or things that need to be fixed, a Conventional appraisal will be less likely to point out those issues while an FHA appraiser will require those to be fixed prior to closing. She has since been paying all her bills on time and her credit score is up to 659. My mother died, I am the trustee. FHA loans have typically been known as loans for first-time homebuyers, filled with extra paperwork and complexity since it’s a government-insured program. Conventional Loans Offer Many More Options and Just 3% Down! Qualify for FHA and conv….leaning toward the conventional 97 program. The property visit itself usually only takes a few hours. Conventional Loans. How to Determine if an FHA Loan Is Worth It. FHA approved the loan , but when they found out I was the seller and related to the buyer. Please let me know if i have any option……. One offers loan amounts for up to 95% of the appraised value of the home, another FHA refinancing loan offers amounts up to 85% of the appraised value. Do the math and that might help you weigh the pros and cons of taking the FHA loan now or waiting another year. As you mentioned, you can avoid PMI with a 20% down payment and the conventional route, which is a plus in that you won’t have to pay costly MI. Under the FHA it would have bee 4% even. The FHA vs. conventional loan debate boils down to two big differences: credit score and down payment requirements. Now I’m not sure if. Will we be able to get a loan? As you can see, the FHA was dominated by FTHB with an 82.8% share in October 2018. Thanks for your assistance! However, we just failed the FHA appraisal due to septic distance from well (needs to be 50 feet, we are at 45 ft) . Depending on the situation, the best offer might come from an FHA borrower, or one using a conventional loan. Qualification will be based on your job, income, assets, amount of equity in home to determine LTV, credit score, and so on. The same can be said for conventional. A. I don’t understand why a seller would do this if the loan is guaranteed by the government. Reading these posts and your comments have been a huge help. It depends on your FICO score, when you took out the loan, what the PMI vs. MIP would be, how long you plan to hold the loan, etc. The conventional route requires better credit (620+) in most cases but you can avoid mortgage insurance. Conventional loans do not require UFMIP, even where private mortgage insurance (PMI) is required. Buyers, though, can help their cause by agreeing to an "as is" appraisal, for one. We’ve talked about some benefits of FHA loans, but there are drawbacks as well. Why do sellers prefer conventional financing? Possibly yes, possibly no. Please help! The upfront MIP can be financed, as for other closing costs, consider a lender credit (higher interest rate in exchange for covering those costs) or a seller contribution. So if you want a 10-year fixed mortgage, or a 7-year ARM, a conventional loan will surely be the way to go. Ask for a side-by-side cost analysis, but also make sure you understand why one is better than the other. And as mentioned, scores between 500 and 579 require a higher minimum down payment of 10%. It’s been a great help. Why do sellers prefer conventional loans? Some FHA loans go quickly, while others take longer. Your real estate agent/broker/lender should be able to advise you on possible options. Yes, nearly 83% of those who used an FHA loan for a home purchase were first-timers. Soo my question is, we just received a revised gfe of 4.625% on our 5% conventional loan. And thank you in advance. 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. Any advice is appreciated, thanks! With FHA, you have to pay MI upfront AND monthly for the life of the loan (in most common scenarios). I’m being offered FHA and conventional options, we are not likely to be able to make more than the minimum for at least two years. You might be able to refinance to conventional and drop the MIP now if the LTV (existing loan balance / current value) is 80% or less. Hi Colin, thank you very much for your help, awfully kind of you! There are two situations when a seller should choose a Conventional offer over an FHA offer. There are various requirements, such as a max LTV, minimum credit score (generally 620), and so on. But it doesn’t sound like you have a choice anyway…good luck! The never-ending FHA MIP could be the tipping point for some. However, the FHA vs. conventional loan battle doesn’t end there. In such a case, repairs must be made in order for the FHA loan to move forward. FHA loans attract buyers who might not have the cash savings for the closing costs out of pocket. If you refinance into FHA there is now MIP regardless of LTV. I am under the 80/20 LTV requirement. The only thing is that i dont want to pay the extra insurance for 30 yrs i dont know if its a good plan to go with the FHA loan…. JW Roeder, a real estate agent with Reece Nichols Realtors in Overland Park, Kansas, agreed that FHA buyers might face resistance when making an offer on a home. Don’t just take their word for it! He now says FHA is my only option and I have to escrow and carry PMI for life. Lastly, be sure to consider the property as well, as both types of financing may not even be an option. Good luck! What’s the point of offering a low rate if it doesn’t really cost less?!?!? Hi Colin first thanks for all the helpful information. Approved and everything. FHA loans offer a lower interest rate and a lower down payment . Another plus to conventional mortgages is that they’re available at pretty much every bank and lender in the nation. We already have land and want to built on it. Reasons Sellers Don't Like FHA Loans Both reasons have to do with the strict guidelines imposed because FHA loans are government-insured loans. if yes what are the requirements thanks. And staying up on the news as much as possible. So essentially today’s FHA borrower is paying for the offenses of the past. In any case your actual rate of 3.75% is what monthly payments should be based on. Alternatively, if your property is valued where the outstanding loan will be 80% or less, you can also refinance out of the FHA and drop the MIP immediately, though you’ll want to make sure interest rates are favorable and refinancing is a good option for you. 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