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Conventional Loans vs. Government Issued Loans: What’s the Difference?

[fa icon="calendar"] May 22, 2019, 8:55:00 AM / by Eustis Mortgage

Eustis Mortgage

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Conventional loans are any loan that isn’t insured by the government. Instead, this type of loan follows the guidelines that are set by Fannie Mae and Freddie Mac, which are two agencies that help standardize mortgage lending in the United States. Conventional loans have a higher bar of approval than its counterparts, but they continue to grow in popularity thanks to low rates and increasingly flexibly guidelines.

 

Conventional

  • Generally requires higher credit scores
  • DTI requirement can be up to 50 %
  • Minimum down payment is 3%
  • competitive interest rates
  • Max loan amount up to $484,350
  • Does not have to be owner occupied
  • DPA is available on all loan types, so this needs to come out.
  • No mortgage insurance required If 20% or more down or once loan is paid down to 78% LTV
  • No assumable mortgages

 

If you’re a first-time home buyer with less than perfect credit with limited funds for a down payment, then an FHA loan may be a good choice for you! The qualifications to apply for a government issued loan are much less than those of a conventional loan. With government issued loans, you can purchase a home with a credit score as low as 580 and can put only 3.5% down with an FHA loan, and just pay mortgage insurance on the side. The great part is once you have 20% equity built into your home, you can refinance to a conventional loan and not have to continue paying mortgage insurance.

 

FHA

  • Lower credit scores are generally accepted
  • Flexible DTI allowances
  • Low down payment requirements (as low as 3.5%)
  • Interest rates are lower
  • Streamline refinancing (No home reappraisal, credit check or income verification)
  • Max or min loan amounts determined by the county
  • Must be owner occupied
  • Down payment assistance programs available (SETH, TDHCA, TSAHC)
  • Upfront mortgage insurance payment and monthly for the life of the loan
  • Mortgages are assumable

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