Mortgages are getting easier to qualify for in 2017

On top of the recent improvement to accuracy that credit reporting agencies are making this year, FANNIE MAE and FREDDIE MAC have increase their back end pre-tax debt ratio from 45% to 50% this month. That means buyers will be able to afford more house and possibly avoid having to go FHA which can save them money.

While FHA is a great option for borrowers with lower credit scores (as low as 520), it comes with some expensive tradeoffs such as an upfront premium that gets added into your loan as well as a monthly insurance premium that cannot be canceled even when your loan goes below 80% of the value of your home!

With conventional loans from FANNIE and FREDDIE, you can still get low down payment options without the upfront fee and the mortgage insurance can be cancelled once you get below 79% LTV.

FHA Loan Advantages

• Low down payment (3.5 percent minimum)
• Can go as low as 520 credit score
• FHA loans are assumable (with qualifying)
• FHA loans are eligible for ”streamline” refinances which require no appraisal or income
• Shorter timeframe following major credit problems (3 years vs. 7 years for foreclosure and 2 years vs. 4 years for bankruptcy)
• FHA loans typically have a lower base interest rate than a comparable conventional loan
• Non-occupant co-borrower (relative) may be used for qualifying by blending ratios

Conventional Loan Advantages

• Low down payment options available as low as 3%
• Mortgage insurance required for loans exceeding 80% loan-to-value but can be removed at 78 percent loan-to-value
• Conventional mortgage insurance is credit sensitive (For FHA, one premium fits all)
• Conventional loans can cover much higher loan amounts (FHA has limits based on county location)
• Even though conventional loans may have higher interest rates, their monthly payments may still be lower
• Over the life of the loan the cost of the mortgage insurance can offset any savings from the slightly lower interest rates of an FHA loan

There are advantages to both loans but it’s important to remember that (especially while rates are still low), conventional will almost always be the better option when it comes to saving you money in the long term. Now if FHA is your only option due to credit or job history issues, then by all means go that route. At the end of the day, it’s still a great option for home ownership and much better than wasting money on rent.

Details like this are why it’s important to work with a Realtor experienced in mortgage finance. Here at the 24hr Team at Coral Shores Realty we make sure our buyer get the financing that is right for them. Feel free to contact us any time.