- On this video, we're gonna talk all about
FHA versus conventional loans,
and we're getting started right now.
(upbeat rock music)
- Hey, how you doing?
Emmett Dempsey, a mortgage broker
and owner of Treasure Coast Mortgage
here in Port St. Lucie.
And welcome to another video.
On this channel, we talk more about mortgages,
the home buying process,
and some cool things around Port St. Lucie
and the Treasure Coast.
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FHA versus conventional loans,
and these two types of mortgages,
first time home buyers, repeat home buyers,
they're the two most common types of mortgages.
And then you might be asking which one is right for me?
Well, I'm gonna do a side by side comparison,
cover different categories on each one,
one at first on FHA then conventional.
And you can see that, you know, sometimes it's a pro,
sometimes it's a con.
And I can kind of make a joke
that the answer to most mortgage questions
is always, it depends.
And it's so true, it really depends on your situation,
your goals, what you're trying to accomplish,
this is your first house or you're buying a vacation house.
You know, those things are gonna change.
So let's go ahead and get a deep dive
into FHA versus conventional.
Here we go.
First, FHA is a little 3 1/2% down payment,
you know, so it's really not a ton to you.
You know there was a misconception that you need 20% dow,
that's definitely not true.
FHA is a little as 3 1/2%.
Next is the interest rates.
Interest rates on FHA are government insured.
So generally very, very low.
Some of the best rates in the market you're gonna find
are FHA loans because they're subsidized by the government
through the funding fee.
FICO minimums, credit scores, actually the minimum is,
technically there's no minimum credit score,
but most banks have set it at 500, 500 with 10% down.
If you have a 580 or more and you rate 3 1/2% down,
so it's definitely a lot easier on first-time home buyers,
building credit, and past credit history.
So it has a lower minimum FICO.
Bad credit wait time.
Debt obtained off of credit.
If you had a short sale, foreclosure,
bankruptcy in the past, FHA has a shorter wait time.
Whereas for it, it's two years for bankruptcy,
three years for short sales and foreclosures.
Debt to income, that's the number one thing
that'll determine how much house you can buy,
whether you qualify or not.
So the maximum DTI, usually on an FHA loan is like 56%.
It's definitely a lot more lenient on debt to income
So there's a very good...
If you need that, if you have something
on your income, you only qualifying on one
and then you need to just stress for house or what have you.
FHA will allow you to be able to build more house.
Funding fee.
That's one of the maybe a con, it's a 1.75% funding fee.
On a $200,000 purchase price
or a loan, rather, it's $3,500.
So, and then that gets,
generally it's financed on top of your loan.
You know, oftentimes you see an FHA,
you have a base loan and a gross loan.
That's the FHA funding fee being financed in.
PMI on FHA, generally, if you get put 3 1/2% down,
that PMI is on there for the life of the loan.
So it's there for 30 years.
And that's just about it is,
the feature that FHA is right now.
And if you put down a little bit more money,
basically, 5% or more, it'll come up after 11 years.
And it's not a debt to income base, not,
but appraised value based.
Whereas, you can have an extreme appreciation,
it's based off a number of years
and not based off of the equity in your property.
So that's one, I'd say negative about FHA.
Appraisals.
There's a kind of misconception FHA,
it's perceived has a higher,
it has a more to restrict appraisal process.
I mean, basically, it can't be a tear down,
has to be basically intact,
but it has obvious holes in the walls, wood rot.
FHA appraisers are gonna ding that
and make you fix it before closing.
Now, the appraisers has to do
a head and shoulders inspection on the attic.
It's not a full-blown inspection,
like, I know some buyers and realtors have heard that,
if I tell you, so much harder.
As long as the house is in decent condition,
you're gonna be fine in FHA appraisal.
FHA does have a loan limit in your county.
I know in St. Lucie County it's $350,750.
And so, you have to be careful that the house you're buying,
I have run into that sometimes
where the account loan limit might not be able to finance.
That means you have to come out
of the pocket with more money
if you hit the maximum on your county loan limit.
Seller concessions.
FHA allows 6% of the sales price, with no loan to value
or how much you put down, you know, requirements.
Basically, it's 6%, you can get from the seller.
Investment properties.
Can't buy in FHA.
Vacation homes, can't buy in FHA.
It's primary residence only.
Condos.
Now, I've actually done an FHA condo.
There's very few complexes that get approved.
'Cause there's a process,
a lot of the FHA's don't do it now.
There is a spot condo process.
I saw it, it rolled out.
Honestly, I have never done one.
It's just most folks who buy condos
just use conventional financing.
I just haven't seen it,
but a condo is a little bit harder to do on FHA.
Okay, and that was FHA.
And let's go and talk about conventional, same categories
Basically, for down payment,
it's really 3% is the minimum.
You know, of course, if you put down 20% or more,
there's no private mortgage insurance,
but 3% is the minimum.
Interest rates.
Interest rates are generally higher than...
It's very FICO-driven and it kind of dovetails
on the next one to a minimum FICO of 620.
But really anything that's under 700
is gonna have much greater ad-ons
for discount points to get a decent interest rate.
Just that comparatively, interest rates
on conventional are uninsured,
and therefore they are a little bit higher.
Bad credit wait times.
It's longer.
So basically, on your bankruptcies,
it's four years versus two years FHA.
Foreclosure's seven years versus three years FHA.
So really, and then in short sales, (mumbles)
it's four years versus three years for FHA.
So you really gotta pinpoint those wait times.
That's gonna determine which way we go, FHA, conventional.
DTI.
Now, DTI is very debt to income sensitive,
and really, anything over 45,
you gotta have compensating factors, 50%'s absolute maximum,
but I don't know, usually when you go over 45,
you gotta have some assets, above and beyond
what you're putting down, they're called reserves.
Other compensating factor is higher FICO scores
in order to get those approval.
So, indeed DTI is capped at 50%.
There's no even 50.01, it's not allowed.
Funding fee.
There's no funding fee on a conventional loan.
So that's definitely savings.
When you look in side by side, there's no funding,
no finance funding fee on conventional.
PMI.
PMI is generally, in some cases, cheaper,
depending on your FICO score.
Whereas on FHA it's set
no matter what your FICO score is, it's pointing at 5%,
you put down three and a half.
Whereas on a conventional,
it's really based off of your DTI,
your FICO score, and that's what it is.
So, of course, the more you put down,
unless you're paying my OB, most does fall off
once it goes at 78%.
So appraisals.
Generally, it's not as strict.
You can buy homes in not as good of condition.
It can't be like a total junker.
So its misconception is like,
oh, conventional, it can be a piece of crap house.
I mean, conventional, it's really not the case.
But it's certainly not as strict as FHA.
Loan limits.
Now, that's one positive.
You go by the conforming loan limit, which is now 510,400.
So, and it's been increased in the last couple of years,
you know, versus your county loan limit,
and some counties around the country it's like
it's still in like 270s.
I know in my county it's 350.
So you gotta be careful about the loan limits.
Seller concessions.
Now less seller concessions, the more you put down,
the more seller concessions you have.
And if you put down 3%,
basically, it's only 3% of the purchase price versus 6% FHA.
But you gotta put down 10% or more to hit that 6% mark.
And if you put down 25% or more, you get up to 9%.
So basically, the more you put down,
the more you're gonna get back from the seller.
So that's kind of how conventional concessions work
Investment properties.
You can buy them with conventional financing.
Generally, I recommend 25% down.
You can put down 20%,
but the pricing is much better.
Put an extra 5% down, buy investment properties.
Vacation homes, you can definitely do in conventional.
You get minimum 10% down here in Florida.
But I have a lot of vacation home buyers
from all over the country
who've, you kind of plant your flag
and buy a vacation house here.
And with the anticipation
that being their forever house after they retire.
Condos.
Conventional loans have an established condo vetting process
that for spot condos, it's, I've done it several times,
you have to go through the HOA.
But that's what we do here in Florida,
we have plenty of condos with conventional financing.
Yeah, you can do condo.
Well, that's the difference in a nutshell
between an FHA versus conventional.
And what's right for you, and it depends on your goals.
We'll definitely sit down and do that.
If you're looking to buy a refinance,
I'd definitely love to help you
and your family on your next home loan.
So give me a call, go to DEMPSEYMORTGAGE.COM
Thank you so much for watching,
and I'll see you on the next one.