If you have read through our previous articles, it is hard not to notice that we have sung the praises of the government-backed loans quite a bit from FHA, to VA, and even USDA Loans. Now don’t get me wrong, for most borrowers, these will probably be their go to mortgage program when looking to purchase a home. These loans almost always have the most lenient guidelines to get qualified and they can be closed on time rather easily. When you are looking at FHA Loans, you will first notice that credit score requirements are relaxed and the down payment required is minimal. When you have VA and USDA Loans, you will see that you can get these loans with no money down and get finance all costs into the loan amount. However, with some new programs introduced it raises the question are Conventional Loans Better Than Government Loans? We will get to the bottom of this question in the paragraphs to follow.
Just because we are saying that the government-backed loans were the way to go, doesn’t mean they still are. That description may be a bit misleading, but recently, there are some Conventional Loans that have been released that have a lot of flexibility that rivals that of the government-backed variety. Is it going to answer the question are Conventional Loans Better Than Government Loans possibly, but at the end of the day it is going to be up to the borrower to determine what’s right for them. Conventional Loans which have their guidelines determined by Fannie Mae and Freddie Mac, or the two government sponsored enterprises. Conventional Loans can be better for a borrower if they can qualify and avoid paying the FHA UFMIP or Up-Front Mortgage Insurance Premium which is rolled into your financed amount when the loan closes. They can also be better than VA and USDA Loans which require a funding fee in order to take on their loans. Granted these can be rolled into the loan, but it is still extra fees you will be forced to pay for. Conventional Loans do not require any up-front fees so you can automatically save money by not having these fees which are associated with the government-backed loans. It is getting to a point where the historical high standards that Conventional Loans had are beginning to recede and lower credit scores and down payments are the normal these days.
If there is a program that is out there for low-income families, it is the HomeReady Mortgage which allows borrowers to purchase a home with as little as 3% down payment. For this program, Fannie Mae doesn’t require all of the down payment to be funds by the borrower. With this loan program, you are able to get a loan with 100% gifted funds or down payment assistance. The main feature of this loan is that makes it so intriguing is that it can take all household income into account for qualification purposes even if the individuals aren’t on the application for the loan. If you are a borrower living with your parents or a borrower living with your working children, all their income can be used in order to get you qualified for the home purchase. The one downfall to this loan is that it is only in place for lower income households and areas that are low-income and high-minority areas.
Now just because you don’t qualify for a HomeReady Mortgage doesn’t mean you won’t be able to qualify for a 3% down payment mortgage with a Conventional Loan. There is a program out there called a Conventional 97, which is exactly what it sounds like and it is a Conventional Loan with a 3% down payment. Now this program can be used for borrowers with more income who don’t need or meet the guidelines put into place for the HomeReady program. If you can qualify for a loan with just the borrowers on the application you will be able to get a conventional loan with 3% down. You will not need to apply for one of these two programs when applying for a mortgage, because a mortgage professional you will find here at Loan Consultants will guide you into the proper loan program for you.
If Fannie Mae has the Conventional 97 loan under their watch, then you can say Freddie Mac countered this by having the Home Possible Advantage program. This loan also allows for a 3% down payment and it also comes with reduced rates of mortgage insurance that Fannie Mae cannot match on their programs. With this reduced amount for mortgage insurance you can see yourself saving $16 per month for every $100,000 financed on your home purchase. With this savings, you can possibly see yourself qualifying for a higher loan than you had originally thought. It might not seem like a lot of money, but it can add up if you are looking for a home at over $200,000.
As you can see, there are definitely some new flexible loan programs out there for Conventional Loan borrowers. If you have a higher credit score, you could find yourself getting one of these loans instead of your FHA, VA, or USDA Loans. The choice is always up to you so we always like to customize a loan program to the borrower’s needs. All you need to do is apply for your loan and let us take care of the rest and get you into the loan you deserve. If you have any questions, you need to call us today and get your loan started. We are here for you 24 hours a day, 7 days a week, days, nights, weekends, and holidays in order to provide you with the best customer service possible.