Conventional vs FHA Loan vs VA Loan? Which loan Is Better? (2018)


Hey this is Chris the Mortgage Pro. In this video we’re comparing conventional
loans to FHA loans to VA loans which one’s the best one? Which one’s right for
You know so many consumers are curious… Which loan is best for me? Today I want
to help you figure out which one is gonna benefit you and your family the
most, for you a short-term and/or long-term goals because it’s different
for everybody. Now there are advantages to each one of these loans so some have
lower interest rates, some have lower fees there’s all kinds of different
things to think about! Now most people have a tendency to just look at one
thing. The payment! Which is cheaper? Well, it’s understandable when you’re buying a
house you say, hey which which payment is cheaper? But, again how long you gonna be
in that house? Is there PMI? Will the PMI disappear? When will it disappear? If the
PMI is gonna disappear in five years but I’m gonna be here in 20 years, maybe this
other loan is better a long term! So we have to look at these things as a whole.
Now people ask you all the time what’s today’s interest rate? It’s impossible to
answer that question, because your finances and every person’s finances are
as different as fingerprints! When we look at the whole situation you have to
understand that all these items, represent different risks to the lender
and the higher the risk the higher the interest rate! The lower the risk for
example if you put a lot more money down, obviously a lower risk right? Or if you
have a higher FICO score lower risk, right? Well we have to look at these
things as a whole to help you determine what interest rate you’re gonna get and
that also helps determine which program is right for you! Okay now it’s time
we’re gonna get into the nitty-gritty we’re gonna get into the comparison.
Number one – conventional loan. A conventional loan has a minimum of a 620 Fico Score
Credit score if you’re not sure what a FICO score is that is your
mortgage credit score. Now on an FHA loan some lenders go as low as a 500 my
company goes down to a 550 the truth is nobody gets approved at 500 anyway and
on a VA loan we’re also looking at the same thing many lenders go to 500
company goes to 550. Okay PMI mortgage insurance and on FHA it’s called MIP
mortgage insurance premium now on a conventional loan what happens is it is
very very dependent on what is your credit score somebody with a very high
credit score might have a very low mortgage insurance payment, but if you
have a 620 Fico score your mortgage insurance payment could be way high.
Now on FHA FHA has pretty much standardized, here is your MIP rate remember they’re
the same thing they just call them something else
here’s your MIP rate it doesn’t matter if you have a 620 a 580
a 550 or 800 FICO score makes no difference you’re gonna pay the same
rate. On a VA loan great news no PMI no MIP you got that one. Okay
we’re almost halfway through the video so hit the subscribe button and hit the
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this with anybody you think it’s valuable for! Okay
Debt ratio! A debt ratio is the percentage of your gross. Gross income is
before they take taxes out. A percentage of your gross income to your debt. Now on
a conventional loan with a high FICO score they’re gonna allow you or a 50%
that includes your car payment your credit cards student loans alimony child
support all those kind of things plus the new house payment, that should be no
more than 50% now if you have a lower FICO score, it’s probably gonna be 45%
that’s how conventional works. Now let’s take a look at FHA with a 580 FICO score
or above, here’s what’s basically going to happen. You’re gonna probably be
approved to a 56.99% let’s call it 57%, again
that includes all your debts plus the house payment as a payment. Lastly we
have a VA loan.Now a VA loan works very very different it looks at how much
money is left over after paying all this stuff.
And it’s called residual income and everybody depending on what area of the
country you live in and how many people in your family
there’s a certain formula for it. Now if you have 20% more than that just
to give you an example if it was a thousand dollars but you have 20% more
$1200 and a high FICO score you may even go up to 60 or 65% debt ratio which is
unbelievable and its highest in the whole industry. Interest rate on a
conventional loan you’re often going to hear Fannie Mae, Freddie Mac those are
conventional loans. On a conventional loan you are gonna have a higher
interest rate than either FHA or VA. On an FHA loan it’s lower than conventional
and right about the same as VA they have virtually the same interest rates. Down
payment on a conventional loan you’re usually looking at a 3% down payment.
People ask me about a conventional loan Fannie Mae Freddie Mac yes those are
conventional loans. Now if we look at an FHA loan an FHA loan is gonna require a
three and a half percent down payment as long as your FICO score is 580 or above.
If it’s 579 or below it requires a 10% down payment and of course for our
veterans who honorably served, we thank you! You get a zero percent down payment
loan. Okay so we talked about PMI, MIP mortgage insurance whatever you want to
call it. But there’s also something called upfront mortgage insurance. Now on
a conventional loan there is no upfront mortgage insurance, but those of you with
a high FICO score might want to pay some, and they eliminate the monthly PMI
payments forever,. So that’s a big deal and that’s only available on a
conventional loan and it doesn’t make sense unless you have a really good FICO
score. On an FHA loan we take the loan amount and multiply it by 1.75 percent
we have to add that to the loan amount. Simple example – if you have a hundred
thousand dollar loan 1.75 percent is $1,750, we’re gonna
add that, so you’d actually be borrowing $101,750
upfront mortgage insurance. On a
VA loan there’s a couple of different scenarios here the first time use of a
VA loan it’s 2.15% so on that same hundred thousand dollars
it’s two thousand one hundred and fifty dollars added on on a second time use
it’s three point three percent so that’s three thousand three hundred dollars now
it doesn’t sound like the end of the world but if you’re taking a four
hundred thousand dollar loan and it’s a second VA loan that’s three point
three percent that is $13,200, that may make you say mmm this other loan might
be better. Now though lastly if you’re a veteran who happens to be disabled 10
percent or more there is no upfront mortgage fee that there is no VA funding
fee it doesn’t exist for you. Okay seasoning from bankruptcy
many Americans through the last few years they’ve had a hard time and they
did file a bankruptcy on a conventional loan 4 years must have elapsed from
the discharge not from when you started but from when it was finished before
you’re allowed to apply for a conventional loan. On an FHA loan it’s
only two years and on a VA loan it’s only two years. Short sale seasoning. Well
a lot of people ask what’s a short sale? Well at a time when people owed more
than the house was worth, they often went to the bank and said, hey my house is
worth three hundred I owe four hundred and the bank accepted three hundred
thousand dollars. That was called a short sale. Well if you have a conventional
loan if you want to apply for a conventional loan it would be four years
after a short sale. For an FHA loan it’s three years must have elapsed from the
time of the short sale and for a VA loan it’s only two years. Again Vets win,
they earned. A foreclosure well yes some people went into really hard times
on a conventional loan we are looking at seven years before you can buy a home
again On an FHA loan it’s only three years and
For the vets – two years from a foreclosure okay
Time back to work after an extended absence. Well on a conventional loan
there is actually no real time frame but the lender will take a look they just
want to make sure it’s reasonable and everything is considered as a make sense
situation you can be back to work for one month after or six months or a year
off. On an FHA loan FHA guidelines require six months back to work with pay
stubs proof they’ve been back to work for six months before they’ll accept
that income. On a VA loan it varies per lender some lenders will accept right
back to work some might want six months or three months a lot of them will
require just get past the probationary period on the job and you’re good to go.
Occupancy on a conventional loan you can buy for a rental, you can buy for a
second home if maybe you want to live in the mountains or down by the beach on
the weekends or obviously for an owner-occupied property. For a FHA and VA
loan it is owner occupied.only. Hopefully this video will help you need a decision
making process which loan is right for you but if you still stuck, reach out to
me call me, text me, email me and if you want this information for free go to click on the tips page we have a download button
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