When you think of a conventional loan, what’s the first thing that comes to mind? Is it 20% down with a FICO score of 700+?
That’s how things USE to be. You no longer have to have 20% to put down on a new home to qualify for a conventional loan. Did you know that you can purchase a home with a conventional loan and only put 3% down?
That’s a huge difference and can leave a decent amount of money in your pocket that you can use for the remaining closing cost, repairs on the home, or even just save it for a rainy day.
Why 3% Down Conventional Loan over 3.5% Down FHA Loan?
You may be wondering what the benefits are to going the conventional route vs fha route. Here are a few of the key differences in the loan options.
Conventional loans allow the following:
- Higher loan amounts (up to $424,100)
- No up-front private mortgage insurance (PMI).
- Flexible guidelines on the homes condition
- Monthly PMI (Private Mortgage Insurance) payments cancel automatically when the LTV (Loan To Value) reaches 78%.
- NO PMI with 80% loan-to-value ratio
- Lower mortgage insurance with a higher FICO score. (0.51% vs 0.85% with FHA)
- 3% downpayment for conventional 97% LTV loan
Those are some of the main benefits to the conventional loan. As with FHA its the opposite from above.
You have up front mortgage insurance that is rolled into the loan. This will cost you an additional 1.75% of the base loan amount and it wrapped into the loan.
Your monthly mortgage insurance is for the LIFE OF THE LOAN which means it can never be cancelled or taken off. With conventional loans, mortgage insurance dropping off can drop your monthly payment by $50-200+/month.
Your absolute lowest down payment on an FHA loan is 3.5%
Those are some of the key difference in choosing a Conventional Loan over a FHA loan. If you would like to speak with a mortgage professional or see if you qualify, click below for more information.
