Conventional Vs. FHA Financing

                In today’s market, there are two programs most people will choose from when shopping for a mortgage. Several years ago there were dozens, but the financial crisis reduced the number of risky programs lenders are willing to promote, leaving the bread and butter loan programs for borrowers who qualify based on traditional underwriting guidelines. The majority of today’s homebuyers will choose between FHA and Conventional financing.

                In order to qualify for conventional financing, you should have a credit score of at least 680. Some lenders will accept lower credit scores, but with higher interest rates and larger down payments. A credit score above a 720 to 740 will qualify for the best rates. Credit qualifying for FHA financing is much more relaxed, the minimum score is a 620 and there are less pricing adjustments for lower credit scores.

                Income qualifying can be tricky at times, and it is always best to review you situation with a competent mortgage broker. A salaried employee who receives a W-2 form every year usually has income that is easy to qualify. To get a rough estimate of how much you would qualify for, take your estimated mortgage payment and add it to your current monthly debt payments such as credit card payments and student or car loans. If the amount of your estimated mortgage plus your current debts is less than 45% of your monthly income, your income will probably qualify.

                FHA programs are also more relaxed with their down payment requirements. The minimum down payment for FHA mortgages is 3.5%.  Conventional financing requires at least 5% down, but with both conventional and FHA financing your earnest money payment is counted towards the down payment.

                When receiving money from family members to help with the down payment on a house, make sure that your mortgage broker knows you’re receiving a gift from a family member. If you are applying for conventional mortgage financing, gifts from family members are acceptable, but you must pay at least 5% down from your own funds. With FHA, you could receive part or all of your down payment as a gift from a family member.

                Because FHA programs have more relaxed underwriting guidelines, the cost to obtain FHA financing is higher. To compensate for the added risk, all FHA loans carry a 1% upfront fee, as well as a 1.15% monthly fee for mortgage insurance. Conventional loans can usually get mortgage insurance for about a .4% to .72% monthly fee and no up-front mortgage insurance. There are several different ways to set up your mortgage insurance, so be sure that you and your mortgage broker knows your goals and budget, so that you can find the best fit for you.

                Although there are fewer mortgage programs available today, it is still important to choose the best mortgage program for you. At South Carolina Mortgage Associates, we work with over a dozen lenders, who are all competing for your business, that’s why working with an independent mortgage broker is the best way to find your mortgage. We are conveniently located on Pelham Road, right off of I-85 in Greenville, South Carolina.
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