Conventional Loan – 3% Down
Lenders will soon offer a conventional loan with as little as 3% down.
The Conventional 3% down payment program offers certain advantages over FHA loans. One being that FHA loan program requires at least a 3.5% down payment. The Conventional 3% down payment program tends to be a bit easier to work through and the loan costs are generally lower than FHA loans. FHA loans typically carry an upfront mortgage insurance premium of 1.75% of the loan amount. Conventional loans are more demanding in regards to a borrower’s credentials. In order to qualify, the debt-to-income ratios are lower than what is allowed on the FHA loan. Higher credit scores are also needed on the Conventional loan, than that of the FHA loan.
FHA borrowers are locked into a longer mortgage insurance period than those with conventional loans. With FHA loans, they require mortgage insurance for the first 5 years of the loan. After the 5 years has elapsed and there is 22% equity in the property, you can get it removed. With conventional loans, you must keep your mortgage insurance for 2 years but is automatically removed once the loan-to-value ratio reaches 78% of the original purchase price.
FHA loans still offer great options for borrowers who have a lower down payment. But for a client who has stronger earnings and credit scores, always look at the conventional 3% down program first.