There are a lot of misconceptions about the mortgage industry right now (Thank you media!) and one of the big ones is that you need 20% down to get a Conventional Loan. This is very far from the truth. Yes you need to have good credit and decent job history but you don’t need 20% down.
It’s true. If you have a credit score of at least 700 you can get a Conventional mortgage in Cache Valley, Utah. If you have a 720 or 740 credit score than you will command a cheaper interest rate but there are still some benefits to getting a Conventional mortgage vs. an FHA loan.
Conventional Loan vs. FHA
FHA is a good loan program for those that only have 3.5% down, need a gift for the down payment, need a non-occupied co-signer, or have credit scores less than 700. However for everybody else, I believe that a Conventional loan will be the better option in most cases. Here’s why…
- Conventional loans don’t require upfront mortgage insurance
- Conventional loans have cheaper annual mortgage insurance
- Conventional offers more lenient property guidelines
Regarding mortgage insurance, Conventional also offers an option to borrowers that want to pay for it all upfront. It’s called “single premium mortgage insurance” and it can save people thousands on their mortgage payments.
Don’t get me wrong. I love the FHA and Rural Housing mortgage programs and they are a big part of my businesss and there are times when somebody with great credit still needs an FHA.
For example, I recently had a borrower with an 800 credit score and a 20% down payment that had to go with an FHA loan because their debt to income ratio was too high for Conventional. It wasn’t that they couldn’t afford the mortgage payments but they had a lot of self-employed income that couldn’t be used on the loan appllication.
However in most cases if your credit score is over 700 and you have at least a 5% down payment than you will likely save money on your monthly payments by using a Conventional loan.
I know of some people that have missed out on an opportunity to purchase a home or refinance because they had a misconcepti0n about the loan programs that are available. If you have any questions about a particular loan program or if you might qualify, give me a call at 435-770-2709.