Did you know that through Fannie Mae, it is possible to get a conventional mortgage with a down payment of only 3%? This is known as the 97% LTV program.
In order to get a lower down payment, many homebuyers (first-time homebuyers in particular) turn to the FHA loan program. This program is popular for a variety of reasons, not the least of which is its 3.5% down payment requirement.
Even though the FHA mortgage program is an excellent opportunity overall, it does have drawbacks in the form of higher fees than those which you would pay for conventional financing.
Plus, with the FHA loan program, private mortgage insurance (PMI) is a requirement. The same is true for conventional loans through the 97% LTV program, but the requirement expires if you go the conventional route rather than the FHA route.
This means that for some homebuyers, the conventional 97% LTV program may be a better fit. But to determine which makes sense for you, you will need to consider the benefits and drawbacks of both options.
Here are Some Key Differences Between FHA Loans and 3% Conventional Loans
With an FHA loan …
- You can put just 3.5% down on the home with a credit score of 580 or higher.
- Your debt-to-income ratio is not expected to exceed 45%.
- You can only use an FHA loan to purchase a primary residence.
- And FHA mortgage may be structured either as a fixed or adjustable rate loan.
- Interest rates on FHA loans are tailored to the affordable, even for those without perfect credit.
With a conventional 97% LTV loan …
- You can put just 3% down on a home with a credit score of 620 or higher.
- Initially, you will need PMI, but this requirement is not permanent.
- Your debt-to-income ratio should be 43% or below to qualify.
- This program is for fixed rate mortgages only.
- You must be purchasing a primary residence.
- Interest rates are competitive despite your low-down payment.
While there are some key differences between FHA loans and 3% conventional loans, you can see that there are also quite a few similarities between these two mortgage products.
Not sure which product is most suitable for your needs, or still need more help understanding the pros and cons of each? I would love a chance to sit down with you and go over your financial situation in-depth along with your goals for the future.
I can help you figure out whether a 3% down conventional loan or an FHA mortgage is more likely to help you achieve those goals affordably and conveniently. If you are ready to get started, please call (619) 857-7191 to schedule your consultation today.