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What are the differences between an FHA home loan and a conventional loan?

March 13, 2019   Auto Loans

When you are looking at the different loans available to purchase or refinance, it can be confusing. Over the past year there have been many changes in the underwriting guidelines for all mortgages. FHA has become a very popular choice for many home buyers. Let’s take a look at the basic differences between an FHA loan and a conventional loan.

FHA stands for Federal Housing Administration. FHA insures loans that are made by approved FHA lenders, they do not lend directly to borrowers. FHA provides lenders with insurance in case a borrower defaults on their loan.

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE). Their mission is to provide stability and liquidity to the U.S housing and mortgage markets. These GSE’s also do not lend directly to borrowers, but they help to ensure that the banks and mortgage companies have funds to lend at affordable rates. These types of loans are typically conventional loans.

The FHA underwriting guidelines are generally more liberal than on a conventional loan. The minimum down payment required by FHA is 3.5%. All of the down payment can be a gift from a family member. The seller is allowed to pay up to 6% of the purchase price towards the buyers closing costs. To be eligible for the 6% from the seller, it must be negotiated in the purchase contract. The minimum credit score that most lenders will allow on an FHA loan is 580.

At this time, the minimum down payment on a conventional loan is 5% – 10%. Due to the lack of private mortgage insurance available, most lenders are requiring that the borrower have a minimum credit score of 720 for a loan to value of 90% – 95%. The seller can pay up to 3% of the purchase price toward the buyers closing costs. However, they can only pay the non-recurring costs. They are not allowed to pay the recurring costs such as taxes, insurance or pre-paid interest. On an FHA loan, they can pay both recurring and non-recurring costs.

One of the other benefits of an FHA loan is that they will allow a non-occupant co-borrower to co-sign on the loan. The income of both the borrower and co-borrower will be combined and used for qualifying. On a conventional loan, the owner occupant must qualify at 35%/43% ratios unless higher ratios are approved by the Automated Underwriting System.

Another difference between conventional and FHA loans is regarding private mortgage insurance. FHA mortgage insurance is required on all 30 year FHA home loans regardless of the loan to value. FHA has a monthly mortgage insurance premium and an upfront mortgage insurance premium. Even though it is called an upfront mortgage insurance premium, it is usually financed into the new loan. On average, the upfront premium is 1.75% of the loan amount. Once you have paid on the monthly mortgage insurance premium for a minimum of 5 years and the loan to value is 78% or below, you can get rid of the monthly mortgage insurance. Speak to your current lender for requirements to remove the PMI.

Conventional home loans also require private mortgage insurance; however, they only have a monthly mortgage insurance premium. They do not require the upfront MIP. Also, conventional loans usually only require mortgage insurance on loan to values that are over 80%. You can have the mortgage insurance removed from your conventional loan once you have paid for 5 years and the loan to value is 80% or below. Check with your current lender for specific documentation needed to have your PMI insurance removed.

Above is just a few of the differences between conventional and FHA home loans. For more information or to contact me directly, please visit

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Taking Charge of Your Zero Interest Credit Card

March 12, 2019   Fast Loan

The biggest names in the credit card industry like American Express, Discover, Citibank, and First USA among others are taking the market by storm with their zero interest credit cards. For people who enjoy an excellent credit rating, zero interest credit cards are a good choice. Not having to pay the additional interest rate on your outstanding balances is undoubtedly a great deal. However, this doesn’t mean that you, the card holder, can sit back and relax on your debts. In fact, with a zero interest credit card in your hands, all the more you need to be in control.

Caution: Zero Interest Credit Cards Can Mislead You

Anyone who plans on getting a zero interest credit card should be aware that a single delay with your payment can cost you to lose the interest-free period and get stuck with a much higher rate. So before you get all too excited in applying for the first zero interest credit card you see, ask yourself, are you really ready to take on the challenge? Can you really commit to paying your credit card balances on time all throughout the zero interest period? Can you finish paying off all your balances within that zero-interest period? If not, switching to a zero interest credit card will not be a good idea.

If you answered yes and you’re really determined to get off from your credit card debts by paying your monthly balances on time, then great, grab the opportunity that a zero interest credit card offers. But take your time in choosing. Don’t judge a credit card deal based on the zero interest alone. Be a wise credit card shopper and examine all other costs associated with every credit card you’re considering. Read the fine print no matter how lengthy or how small the letters are. The real costs of your credit card are all disclosed in your credit card agreement.

Also, don’t forget to check on your credit report before actually sending out your application. Credit card companies do give out offers to just about anyone, regardless of whether they’re eligible for the offer or not. But getting denied after submitting your application will only damage your credit score all the more. So, don’t expect an approval unless you’ve personally checked on your credit report. If you’re sure that you have good credit, that’s the only time you should submit your application.

Taking Charge Of Your Credit Card

After going through the choosing and finally getting approved, what’s next? Be prepared to take on your responsibility. Pay off as much as you can each month so you can get off from your credit card balance at the soonest possible time. You have to beat the zero interest period before it expires.

It is a good idea to have your credit card repayment plan set up even before you get a zero interest credit card. If the zero interest period runs for 12 months, make it a goal to finish paying off your balances at even less time. For instance, complete your payments within the next 10 months or even less than that if you can.

Lastly, taking charge of your credit card means being in control with your own spending. If you keep charging new purchases on your other credit cards while trying to repay your old balances, you’ll certainly have a more difficult time keeping up with your payments. So take charge. Know your limits. If you must use your credit card to avoid closing your account, use it only for small charges that you can easily pay off on your next due. Bear in mind that a zero interest credit card will only work if you know how to use it to your advantage.

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