I recently toured a house and produced a video showcasing it. It’s a beautiful Victorian located at 5775 NE Garfield Portland, OR 97211. The owner put a lot of time & effort…oh, forget it. Here’s the video:
Beautiful house, right?
Okay, so at the end of the video (link for mobile), I talked about how this home qualifies for FHA financing. I also mentioned Conventional as an option.
And then it dawned on me….how about a post discussing:
Conventional Vs. FHA!!!
I just want to look at the basics, not involving a lot of real numbers because, quite frankly, the amount of information that needs to be disclosed when discussing real situations is ridiculous. All that for the numbers to be outdated next week, whether or not they actually applied to your situation in the first place.
The minimum required downpayments for these loans is actually pretty close. The FHA home loan requires a minimum downpayment of 3.5%, while the some Conventional programs allow a minimum of 5% down. You can always put more down, to varying effect. This is something that needs to be considered on a case-by-case basis.
Ha ha, you thought you were going to see real interest rate numbers, didn’t you? Well, instead of rates, I’m going to talk about what goes into your interest rate, which is “pricing”. Conventional loans are priced in such a manner as to “penalize” you for lower credit score and lower downpayment. There is actually a matrix involved. With FHA, there is less “computin” to do in order to determine your interest rate. An easier way to say it is that FHA is a little more lenient when it comes to your credit score and downpayment. Learn more about loan pricing here.
Mortgage Insurance can vary wildly with Conventional loans. That’s because, just like the interest rate, your Mortgage Insurance is based on your credit score and loan-to-value. FHA is more like a “group policy” in that everybody gets the same rate. FHA mortgage insurance is split between an upfront fee that is tacked onto the loan amount AND a monthly premium. Conventional offers some different options, as opposed the “one-size-fits-all” approach FHA offers.
Both loan programs offer a variety of loan terms. The “term” is the length of your loan. There’s 30 year fixed, 15 year fixed, 5 year ARM (adjustable rate mortgage), even a 1 year ARM. Sometimes, depending on the program, the rate can be lower if you choose and ARM. Most people prefer the security of a 30 year fixed; others won’t be in the house very long and prefer the lower payment. Your loan term should really be based on your individual situation.
The Bottom-line
As you can tell, it really depends on your situation. The only real way to tell is to get pre-approved first. I can help you with that if you are in Oregon or Washington ;-)
And to learn more about this house, check out the listing broker’s site. His name is Michael Rysavy, and you can also contact him at 503.860.4705
And if you’re in the neighborhood, I recommend checking it out. Especially the floor on the front porch!
I have worked in the mortgage industry in Oregon & Washington since 2005. I have had a front row seat for the train wreck. I use that experience to help educate home loan consumers.
Home loan questions? Ninjas have answers! 503.799.4112 MLO#119032
home loan questions? ninjas have answers! email me at jason@mypmb.us or call 503.799.4112!
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