Option #2…continued from my last blog on today’s available fixed rate loans. We last talked about the Rural Home Loan. Now let’s get into FHA and Conventional.

FHA is a loan that was designed for the first time homebuyer. It requires less down payment when compared to a conventional loan (conventional loans now require 10% down in the state of Florida) and is more forgiving with respect to your credit or the lack of credit. FHA only requires a 3.5% down payment and this money can be given to you as a gift from a relative. The seller of the property cannot roll this into the price of the home. Only closing costs can be rolled in up to a limit of 6% of the purchase price (conventional limits this to 3% when putting 10% down). Always remember that the money you are using for down payment and closing costs must be “sourced and seasoned”. I will get into this in a later blog.

I want to talk about why some of my buyers are electing to purchase with FHA lending even if they have the 10% to put down. You don’t have to be a first time homebuyer. You can own up to 4 properties. The stipulation is that you cannot have 2 FHA loans at the same time.

So why go FHA over Conventional ? …Credit Score. Credit scoring adjustments for conventional loans have increased from 620 to 680 in 2008; it was then raised to 720 and recently has been increased to 740 minimum score without adjustments. These adjustments vary with the amount of down payment. For example, a borrower with a score of 679 and 10% down payment would be charged an additional 2.125% of the loan amount on a conventional loan (there would be no additional charge on FHA). This is an additional $5,312 on a $250,000 loan. This is why shopping with 3 different lenders for rate can be very tricky and can be very misleading. My advice…work with someone you trust and someone with a lot of experience and credibility.