December 20, 2019
Are there real differences between FHA mortgage loans and conventional real estate loans?
The short answer is yes, the first and most basic difference is that an FHA mortgage is guaranteed by the government, where a conventional loan is not. And there are many other differences.
The government’s guarantee to the lender to back a certain portion of each FHA mortgage makes the loan a better risk for the financial institution offering you a line of credit.
It doesn’t matter if you want to build a home on your own lot, buy a condo unit, or a mixed-use property (that’s mostly residential).
There are FHA loans for all those purposes and at the same low down payment requirements that FHA mobile home loans and single-family houses have. Just because you want a construction loan doesn’t mean you get penalized with a higher down payment.
FHA mortgages feature lower down payment requirements than many conventional mortgages.
You may find conventional loans requiring 10 or even 20 percent down (depending on whether you want to carry mortgage insurance or not) where an FHA mortgage for qualified borrowers with FICO scores at 580 or above may qualify for maximum financing.
That means a down payment requirement of only 3.5% of the adjusted value of the home.
The 580 FICO score is an FHA minimum standard. Lenders may ask for FICO scores of 620 or higher for maximum financing, and if you have marginal FICO scores your down payment requirement may increase. FHA minimums can be supplemented by the lender’s FICO score range rules.
FHA home loans do not permit lenders to penalize you for early payoff of your mortgage loan.
You also must not be charged to get a final payoff amount or to get information “essential to the payoff” according to HUD 4000.1.
FHA lenders may not charge you for “recording the Payoff of the Mortgage in states where recordation is the responsibility of the Mortgagee” according to the same rulebook.
FHA loans are also assumable with the participation of the lender. This means that a borrower can permit another person to “take over” the loan at some point if needed. The lender will need to qualify the person assuming the mortgage, but the original borrower is not restricted from seeking an FHA loan assumption if needed.
FHA and conventional loans may have varying credit standards. An FHA loan, backed by the government, may have more forgiving terms than a conventional loan for the same amount and duration. Talk to a lender today about your options to buy or build a house with a lower down payment.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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