| Primer on the Difference Between an FHA Loan and | | | | a loan that is over 80%, they will be required to add a |
| a Regular Conventional Mortgage Loan | | | | Mortgage Insurance Premium to their monthly payment. |
| It is in every borrower's best interest to understand the | | | | FHA's mortgage premium is a standard .50% of the |
| difference between a Conventional and an FHA | | | | loan amount. In other words it does not matter if you |
| loan,Visit Here if they owe more than 80% of their | | | | borrow 81% or 94%, if you borrow over 80%, the |
| home's value or are interested in purchasing a home | | | | Mortgage Insurance Premium would be the same at |
| with less than 20% down payment. | | | | .5%. A .50% Mortgage Insurance premium on $200,000 |
| First FHA will allow a borrower who wants to | | | | would be $200,000 x .50%, which equals $1,000. This is |
| refinance, or purchase a home, the opportunity to | | | | an annual premium and so it needs to be divided by 12. |
| borrow up to 96.5% of their home's value. This is also | | | | Therefore, the Mortgage Insurance Premium on an |
| known as LTV or the "loan to value" ratio. If it is a | | | | FHA $200,000 loan would cost an extra $83.33 per |
| refinance, and they want to borrow 96.5% LTV, then | | | | month ($1,000 divided by 12 = $83.33). |
| the borrowers are not allowed to take out any cash. | | | | With a conventional loan there are different |
| The only refinance that will be accepted is one where | | | | percentages associated with different LTV's. For |
| the borrower benefits with a reduced monthly | | | | example a borrower who needs a loan that is over |
| payment from a lower interest rate. | | | | 80% but under 85% LTV will have a smaller Mortgage |
| A borrower can work with a Conventional loan if they | | | | Insurance Premium than someone who needs to |
| only have to borrow 95% or less LTV. It's usually | | | | borrow 90% or 95%. |
| financially better to secure a Conventional loan than an | | | | The Mortgage Insurance Premium payment under |
| FHA loan because of the 1.75% up front fee that FHA | | | | 85% LTV is about the same as the FHA premium, but |
| requires. This can be a significant extra fee if the loan | | | | the Mortgage Insurance Premium (also known as MIP) |
| amount is three or four hundred thousand dollars. For | | | | on a 90% or 95% LTV loan is much higher than FHA. |
| example, the extra fee on $300,000 is actually $5,250. | | | | So where as the FHA loan asks for a large upfront |
| So if you have at least a 5% down payment on a | | | | fee of 1.75% and a smaller monthly Mortgage |
| purchase, or have at least 5% equity in your home | | | | Insurance Premium, the Conventional lender does not |
| when you are ready to refinance, you might qualify for | | | | ask for an upfront fee, but collects a larger Mortgage |
| a Conventional loan and forgo the 1.75% up front fee. If | | | | Insurance Premium during the life of the loan. A good |
| you can afford a 10% down payment, or have 10% in | | | | loan officer can crunch the numbers and figure out |
| equity when you are ready to refinance, you have an | | | | which type of loan is in your best interest. |
| even better chance of securing a Conventional loan. | | | | I hope that this explanation clarifies the differences |
| This is because there are several restrictions on | | | | between the two loans and shows the advantages |
| Conventional loans between 90% and 95% LTV and | | | | and disadvantages of each type. |
| many borrowers will not be strong enough financially to | | | | My name is Allen Sayble and I have been a loan |
| qualify. For example, the credit score must be | | | | officer since 2001. I specialize in hard to find loans |
| exceptional (over 720 points) to get a loan over 90% | | | | through FHA and USDA for borrowers with less than |
| LTV. | | | | stellar credit, or who want to borrow over 80% of their |
| One advantage to an FHA loan is the cost of their | | | | home's value. I also enjoy helping borrowers in a sound |
| Mortgage Insurance Program. Mortgage Insurance is | | | | financial position. You have worked hard to keep your |
| an extra fee that must be paid alongside the regular | | | | credit strong and keep your financial ship moving in the |
| monthly Mortgage Payment. Regardless if it is a | | | | right direction. In return, I will work hard to get you the |
| Conventional or FHA loan, anytime a borrower needs | | | | best interest rates the industry has to offer. |