So you finally decided you're looking to buy your first house, and now
you go out there and you're trying to get pre-approved and you have
all these offers coming to you.
You can get into an FHA loan, you can get into an adjustable rate,
a fixed rate, a two one buy down.
You can get in this.
It's confusing.
It's really confusing.
But what I want to explain to you guys today is when is the best time
to choose an FHA loan, and when should you not choose an FHA loan?
So let's get to the criteria behind it.
FHA loans are for clients with basically under a 620 credit score.
Why 620?
Well, that's the credit score that you need to get approved
for a conventional loan.
If you're under a 620 credit score, you really have no options.
You can go with a VA loan if you're a veteran, but we're
not talking about that today.
You can even do USDA.
In today's video, we're talking FHA, so you have the option to do an FHA loan
all the way down to a 500 credit score.
Okay, so now here's where we're kind of gets a little bit gray.
When you have good credit, when your credit score is 670 and above, now you
have the options of choosing between a conventional loan and an FHA loan.
Okay?
So there's two pieces here that we wanna really dissect.
What is your Debt Ratio?
What is your Credit Score?
Because those are the two factors now that are gonna really dive us in or direct us
to what mortgage product that we need.
So we know the credit score, what realm you're in, but again,
we're looking at the good range.
So if you have a credit score of 670 or more, you're probably leaning toward
the conventional side of the equation.
The next thing we want to go is to the Debt Ratio.
Okay.
Your debt ratio is basically this, and this one says total
assets versus total debts.
But let me explain it to you.
What your debt ratio is, is you take all the debts on your credit report.
You don't include your, like your gas bill and your cell
phone bills and things like that.
It's basically creditors.
Creditors that show up on your credit report.
You take that plus your proposed mortgage payment and you divide that
on here it says total assets, but it's actually divided by your gross income,
the income before all your taxes and your 401k and everything's taken out.
Okay?
So that once you figure out that ratio, if that ratio is under 50%,
you can go with the conventional loan.
If it's over 50%, you cannot go with conventional loan because they
cap it out at a 49.999% debt ratio.
Okay?
So a candidate for an FHA loan would be if you have a debt ratio over 50%.
Okay, so now let's tie this together.
If you have a credit score like we're showing right here, if you have a
credit score of, you know, let's say 600 and you got a debt ratio of
53% or your only options are FHA.
But now here's what I wanna explain to you.
If your credit scores, let's say 680 or above, or let's say 700 or
740, and your debt ratio is under 50%, your most likely best choice
is gonna go to a conventional loan.
The reason why, one huge reason is FHA charges you a fee to do the loan.
So what FHA is doing, they're actually ensuring your loan in case of default,
and they're gonna charge you 1.75%.
Of the loan amount.
So let's, for hypothetical reasons, let's say you're buying a $500,000 home.
Okay?
So let me put that number in my trustee calculator, actually my cell phone.
You have a $500,000 loan that you're taking out.
FHA is gonna charge you 1.75% or $8,750 is a fee.
Just to ensure you're loan, it doesn't ensure your house for being burnt.
It doesn't ensure your anything.
It ensures the lender in case you were to default on the loan.
So again, let's wrap it up.
If you have a 680 credit score, 700 credit score your debt ratio is under 50%.
I can save you right outta the gate.
$8,700 by not choosing the FHA loan.
So I'm not saying an FHA loan is bad very much.
In many situations, especially if your credit scores are 640 and
below, FHA is the best way to go.
Even though you pay that fee, you're gonna get a lower rate and you're most
likely gonna get a lower PMI factor.
If all this is confusing, please reach out to us.
We'd love to help.
My name is Dan Frio.
I do this every day to explain to you, guys the mortgage products to
make sure you guys don't make mistakes that millions of others are making.
So the best way to do this, if you have additional information that
you wanna find out, book a meeting.
I have meetings I set up every day.
So if you wanna book a meeting with me to do a one-on-one consultation,
hit that book of meeting.
You'll be able to schedule with me personally, one-on-one, and I hope to
see you then so you can learn even more.
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God bless guys.
Thanks so much for watching.
Hope to hear from you.
Bye-bye.