What Mortgage is the Better Deal?

When seeking Which Mortgage is the Better Deal; you must first understand how each product works. This means that you need to understand how Conventional financing, rules and regulations are laid out and also the government products; FHA and VA.

We know that Fannie Mae and Freddie Mac make up the underwriting guidelines for conventional financing and FHA makes the rules and regs for FHA. With that said; the lenders are those banks, mortgage companies, or financial institutions who originate the loan, takes the application, gathers the documentation and closes and funds the loan. They then sell it to one of the investors for that particular product; Conventional, FHA or VA.

Most everyone knows that you must be a veteran to obtain a VA mortgage or either be a spouse so this one is kind of easy and yes they may obtain 100% financing and have a funding fee which may be added into the loan amount. So....since this is mostly about the other two products we will stop there for VA.

Ultimately, one should study their current financial situation, understand the different types of mortgage loans there are and know what kind of lender to seek.  Most Mortgage Bankers lend all products to include Conventional, FHA and VA.

It is also wise to understand each different loan available to include fixed rate, adjustable rate, interest only, and know that there are 40 year terms available.  It is also advised that you understand mortgage insurance products and when you must have it. 

Before going for an application; study the rates that are prevalent online.  Usually they vary by a minimum of .125 or .250% but it is of your best interest to know the going rate for that day or week.  Rates change daily, not weekly though.  Study RESPA changes.  Know what the good faith estimate looks like. Study the HUD1 closing statement.

Be prepared before you go to any lending office and always asks questions about what you do not understand...don't be unwise.

 A conventional loan is a loan that the bank, mortgage company or lender originates and then sells to an investor.  The investors are usually Fannie or Freddie. Sometimes there may be other larger banks that a loan can be sent to from a smaller bank; before it is sent to Fannie or Freddie.  This is because the smaller bank may not be approved to send their loans directly to the investor; so the loan is closed and funded and sold immediately to a larger mortgage lender who sometimes may service the loan.

Conventional loans have a maximum financing of 95% loan to value for the standard FNMA (Fannie Mae) loan.  Fannie Mae does have a Flex 97 which has guidlines similar to FHA guidelines for down payment, closing cost and reserves.  The Flex 97 will allow for gifts for the down payment and closing cost but on the standard products; the borrower must have a minimum of 5% down pyament rom their own funds.  Unless of course they are fortunate to have a gift for 20% down payment, making the loan to value 80%.

Any loan with a loan to value over 80% must carry mortgage insurance.  This is added into the payment of your loan.  There is no upfront mortgage insurance as it is with FHA. 

Credit standards are higher with conventional lending and all loans are put into the automated underwriting system, called DU (desk top underwriter) for the initial approval or denial which is then underwriter by a live underwriter.  All factors are evaluated to include, employment history, income history, credit, assets and over all ability to repay the debt for the mortgage.

This product is insured by the Federal Housing Administration after the lender had made the loan. It must comply with FHA rules, regulations and guidelines.

Maximum financing is 96.5% with upfront MIP and monthly MIP. These regulations have just changed as of today; October 4th. The upfront has changed to 1% with the monthly .90 percent for 30 year loans.

Down payment for FHA is 3.5% and the down payment may come from flexible sources such as gifts, grants and down payment assistance. If credit score is lower than 580; 10% down payment is required for these loans.

FHA will no longer allow 6% seller paid cost. This is being changed to 3% to be more like the industry standards.

FHA does is more flexible on credit standard in some ways but are becoming more in line with Conventional financing every day. They have apparently suffered defaults of a significant amount and know that a higher standard in unavoidable.