FHA vs. Conventional Loans

I'm hoping to get some people's opinions on FHA vs. Conventional Loans. It seems that in the long run (assuming one can afford the higher down payment, closing costs,etc.), it is better to get a conventional loan? How much seller assist does a typical conventional loan allow for (compared to the 6% with an FHA)? I don't think conventional loans require a MIP fee at closing and a monthly MIP payment right? From what I understand that is the main difference between the 2 types of financing. Any feedback/recommendations is welcome. Thanks!

Edited: 06/26/2010 at 09:12AM

Valerie Pedigo

· Panama (South of Buffalo), New York

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Icon_minipost Aug 10 '09, 09:59 PM

The closing costs are about the same between them. For FHA you have to have MIP no matter what, even if you put 20% down. With conventional, if you put 20% down you don't have to pay MIP.

If you are looking for non-owner occupied properties, conventional is the way you have to go.

Seller concessions are the same - up to 6%.

Are you getting ready to make an offer on a property?

Edited: 06/26/2010 at 09:18AM

Ryan D

Real Estate Investor · Pittsburgh, Pennsylvania

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Icon_minipost Aug 10 '09, 11:38 PM

Valerie thanks for the insight. I didn't realize that the seller assist was the same in both situations. And both have MIP charges, I didn't realize that either. I am looking at several properties and wanted to get some peoples opinions in financing. It seems a lot of people recommend conventional over FHA.

Edited: 06/26/2010 at 09:18AM

Darryl Dahlen

Commercial Loan Officer

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Icon_minipost Aug 11 '09, 01:34 AM

Valerie would be able to offer more insight than I can on this, but you may want to look into a USDA loan too.

Edited: 06/26/2010 at 09:18AM

Brian Levredge

SFR Investor · Long Beach, California

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Icon_minipost Aug 11 '09, 03:20 AM

FHA also requires your spouse (if you have one) to be on the loan. If they have bad credit, lates, etc, it can make getting an FHA loan pretty difficult. With conventional, this is not an issue since one spouse can qualify on their own.

Edited: 06/26/2010 at 09:18AM

Ryan D

Real Estate Investor · Pittsburgh, Pennsylvania

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Icon_minipost Aug 11 '09, 03:30 AM

Hey all, thanks for the feedback... So it seems like the 2 loan types are more similar than what I had originally thought (with a few more hoops to jump through for an FHA). My main question now would be in the long run is a conventional loan the cheaper option? It seems that since I have good credit and can afford the 10% down it would be easier/more cost efficient in the long run to go with a conventional loan?

Edited: 06/26/2010 at 09:19AM

Ryan D

Real Estate Investor · Pittsburgh, Pennsylvania

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Icon_minipost Aug 11 '09, 03:33 AM

I have never heard of a USDA loan before but seeing as I am looking in the Pittsburgh area, I am assuming I would not qualify for this type of loan? From what I have read (which isn't much) it seems like these loans are for properties in rural areas.

Edited: 06/26/2010 at 09:19AM

Darryl Dahlen

Commercial Loan Officer

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Icon_minipost Aug 11 '09, 04:10 AM

You'd be surprised how urban the area can be and still qualify for a USDA loan.

Here is a map from the website for PA showing the eligible areas.

http://eligibility.sc.egov.usda.gov/eligibility/eligibilityAction.do?pageAction=countyMapList&st=pa&state_name=Pennsylvania&st_cd=42&map_region=0

Edited: 06/26/2010 at 09:19AM

Brian Levredge

SFR Investor · Long Beach, California

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Icon_minipost Aug 11 '09, 04:56 AM

There are trade offs. You'll get a lower interest rate with FHA (owner occupied) just like you will any conventional owner occupied loan than you will with NOO conventional. However the PMI (MIP) basically wipes that out. Can you do NOO conventional loans with 10% down? I am not aware of those, which isn't to say they don't exist. The other thing with FHA is that there is also an occupancy standard that must be met before you can sell. That could obviously affect your exit strategies.

Edited: 06/26/2010 at 09:19AM

Josh Green

Banker · Tampa Area, Florida

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Icon_minipost Aug 11 '09, 05:36 AM

Originally posted by Brian Levredge

Can you do NOO conventional loans with 10% down? I am not aware of those, which isn't to say they don't exist.

from my understanding (and a pretty great amount of research) these do not exist at the current time.

Edited: 06/26/2010 at 09:19AM

Valerie Pedigo

· Panama (South of Buffalo), New York

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Icon_minipost Aug 11 '09, 06:41 AM

Here are the guidelines for Fannie Mae - just to give a rough idea of LTV. I don't know of any 10% down noo programs. Also, unfortunately, USDA/VA/FHA do not lend on noo investment properties.

1-4 Financed Properties

Full Doc - Conforming ($417K)- Fixed

1 - 2 units -Purchase & Rate and Term Refinance
Maximum LTV/CLTV - 80%, Minimum FICO - 660
Maximum LTV/CLTV - 80%, Minimum FICO - 620
Maximum LTV/CLTV - 75%, Minimum FICO - 580

3 - 4 units -Purchase & Rate and Term Refinance
Maximum LTV/CLTV - 75%, Minimum FICO - 620

1 - 2 units - Cash Out Refinance
Maximum LTV/CLTV - 75%, Minimum FICO - 620

3 - 4 units - Cash Out Refinance
Maximum LTV/CLTV - 65%, Minimum FICO - 620

Full Doc - Conforming ($417K)- ARM
Same as above.

Full Doc - Non-Conforming (>$417K)- Fixed and ARM

1 - 2 units - Purchase & Rate and Term Refinance
Maximum LTV /CLTV - 80%, Minimum FICO - 740, Maximum Loan $650,000.00

3 - 4 units - Purchase & Rate and Term Refinance
Maximum LTV/CLTV - 75%, Minimum FICO - 740, Maximum Loan $1,000,000.00

5 Through 10 Financed Properties

Full Doc - Conforming ($417K)- Fixed

1 unit - Purchase
Maximum LTV/CLTV - 75%, Minimum FICO - 720

1 unit - Rate & Term Refinance
Maximum LTV/CLTV - 70%, Minimum FICO - 720

2 - 4 units - Purchase & Rate and Term Refinance
Maximum LTV/CLTV - 70%, Minimum FICO - 720

Edited: 06/26/2010 at 09:19AM