![]() Jason has $25,000 saved and is putting $20,000 down, so he can pay either upfront charge. FHA loans carry a 1.75 percent upfront MIP regardless of the borrower's credit score. ![]() Conventional surcharges are 1.25 percent for borrowers in that range. Key Factors in the FHA/Conventional Decision: Jason's FICO score is a respectable 699.He expects keep the property "forever," turning it into a rental someday. Buyer's Story: Jason, 38, is a first-timer looking for a $200,000 property.Now let's look at an example where a conventional loan is better choice for the home buyer.Įxample Where a Conventional Loan Is the Best Option Here, the lower down payment and seller concessions make the FHA loan better for this family. Is FHA or Conventional the Right Choice? A willing seller could cover the upfront mortgage insurance, lender charges, discount points for a lower rate (3.5 percent for an FHA loan vs 3.25 percent for conventional financing), and other closing costs - up to $12,000 worth for a $200,000 house.In addition, FHA programs allow sellers to pay up to 6 percent of the sales price in closing costs, while conventional programs allow only 3 percent. Key Factors in the FHA/Conventional Decision: FHA's 3.5 percent down payment gets them a $200,000 house, but 5 percent down on a conventional loan buys only a $160,000 home.Their 675 FICO score means conventional lenders would charge a 2.25 percent risk-based adjustment and a 1.21 percent annual mortgage insurance premium. Their seller is willing to cover closing costs to maximize their available cash. Buyer's Story: Jim and Lisa want to buy a $200,000 home for themselves and their 12-year-old daughter, but they've only saved about $8,000.Property Price: $160,000 for Conventional, $200,000 for FHA.Example Where FHA Loan Allows Purchase of a More Expensive House
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