Conventional vs FHA

10 Replies

I have a little dilemma and don’t know the answer or solution per say for this problem a friend of mine is facing.

Scenario is that this person has little to no money down , debt to income ratio from what I told was not too bad but could be a problem and credit score currently has dropped too low that a conventional loan may not work.

Property they found was found as a HUD home listing and is a fixer upper for sure. Offer was made in hopes that she can get an FHA loan but was told by seller that the offer would need to be changed to a Conventional loan. Not sure why ? She don't know why either.....

Conventional loans from my understanding is much more stricter in regards to needing a high credit score as well as a larger down payment which is not possible thus why she was hoping for an FHA loan.

Any advise I can give her or does anyone know of a lender that might be able to help. She is in the Knoxville Tennessee area.

Hello Jay! The best answer is Owner Financing using a "Subject To" loan where you usually do not need a down payment. The Bank is taught to take advantage of you. Another option is to use a "cash ne of the biggest problems with that is giving up part of your profit but it's better than nothing. Other options are Private and Hard Money Lenders which area about a 10% down payment. They are usually more flexible than Banks, and usually lend based your experience. Any loan that occurs for a Bank is more restrictive, including an FHA loan. Good luck to y'all!

@Jay Turingan . From spending about a minute on hud.gov in "About Buying HUD Homes" section.

".......it may be possible for you to qualify for an FHA-insured mortgage to finance the purchase."

Placing an offer based on hoping a loan can be secured is probably not a good idea. Your friend needs to invest more effort to be prepared to buy.

Hi Jay

In my experience I can tell you this scenario screams 203k and that the seller needs to be educated on the loan options available. If indeed it is a HUD home it could be the asset manager that is making this go conventional for they are looking for a fast close. If it is a HUD sale it would be listed on the HUD HomeStore and there would be reasons why the financing type is selected. I have seen scenarios where they only will accept a conventional loan and then will allow it to be changed to renovation financing once it's confirmed by the inspector it needs to be a renovation loan (I know, it makes no sense but then again no one has ever accused the federal government of using common sense eithe lol).

One thing to note HUD also allows for $100 down versus the standard 3.5% thats required.

I licensed in Tennessee and would be happy to help your friend. 

@Bill Rich As far as I know, the HID "$100 down" is only on a very small percentage of HUD homes, and is advertised as such. Not sure why HUD wouldn't be very aware of a 203k option.

@Jay Turingan If your friend hasn’t actually already been preapproved for an fha loan, up to a known amount, as opposed to “hoping for an fha loan”, they are just wasting their time, and everybody else’s.

Wayne, yes the property may or may not be advertised as a HUD $100 down candidate you can very easily submit the offer making it a $100 down loan even when it's not marketed as such. I've done several times on HUD properties around the country with my mortgage clients. Sometimes the buyers agents aren't well versed on REO and that's where I can help from the mortgage side with buyers.