Hello, everyone and welcome back to a new video, sean's name and mortgages are the game. Today, conventional fha va usda, nwa non-qm, let's be honest. Alright, there are so many different types of loan programs and thousands of different guidelines that apply specifically to each. It is nearly impossible to keep up with all of them and that's why you need to have a really good mortgage broker, walk you through the process like myself, but unfortunately, i'm only licensed in california, arizona and texas right now, so i can't help everyone.

That's why i'm making this video today to hopefully help anyone out there who is looking for information when it comes to deciding between a conventional and an fha loan when they go to purchase a home? So if you're thinking about financing a home then strap on in because this video is going to have a lot of really good information for you, so let's do it all right. So i got ta say it because i'm spending time on this video all right. If you're looking to purchase a home in arizona, california or texas, then definitely head over to lending.seanmaucu.com got ta plug it. You know otherwise, let's break down specifically what a conventional loan is and an fha loan is maybe who each loan program is designed for when it makes sense for each loan program and ultimately kind of how you qualify for each loan program.

So there's gon na be some really good information and simply put these are both great loan programs. Okay, i get a lot of first-time homebuyers asking me well sean which one's better, which one should i be going for. It really depends on your specific scenario and after you watch this video you'll kind of understand. Why so again, they are both great loan programs and if you are a first time home buyer, then i actually recommend you watch this video on what it means to actually be a first time home buyer and what kind of perks you do get.

I got a lot of other great videos linked down below so definitely check that out, but all right, let's jump in okay here - are the differences between conventional and fha when you're going about purchasing a primary residence first off conventional loans are privately backed and fha loans Are government backed - and this doesn't really matter for your sake, but it kind of explains why there's different guidelines for each and why each program is a little bit different, so conventional loans allow for as little as three percent down in some cases, even though five percent Is preferred all right, fha loans allow for as little as 3.5 down in pretty much all scenarios. Conventional loans have mortgage insurance if you're putting less than 20 down and fha loans have mortgage insurance, no matter what you could be putting 50 down and you'll still have mortgage insurance. And let me just briefly talk about mortgage insurance, because so many people always call me and say, oh, is that the pmi is that this uh, what's mortgage insurance? What is this essentially, if you're putting less than 20 down on a conventional loan, it's seen as a riskier loan in case the market takes a downturn, so the lender has to protect themselves by essentially having you pay a mortgage insurance just like how you'd pay car Insurance home insurance, any type of other insurance. It's the same way, it's just the fact that now the lender is insured in case you ever foreclose or default on that loan um, because you're putting very minimum down so going back to the white board.

To kind of add to this: if you go the route of a conventional loan, once you pay down the balance of your loan or your home is appreciated significantly in value, so you have at least the 20 equity mark. Then your mortgage insurance will automatically fall off and go away. That's really big because on the fha side, no matter what you are always going to have mortgage insurance on that loan, unless you refinance to a conventional loan in the future - and i want to give you a little bit of a secret to the mortgage world - that Almost nobody talks about it's even hard for loan officers like myself to actually find these guidelines, because not a lot of people talk about this, but i'm giving you a little secret right now. If you were to put down 10 or more on an fha loan after 11 years, you will actually not have mortgage insurance anymore.

That is the one exception to the rule. Is the fact that if you put more than 10 down on an fha loan after 11 years, which is a very long time, but after 11 years, it will automatically go away and the reason no one talks about this is because the average person is in their Home and specifically in their home loan from anywhere from four to seven years. So if you're in the same loan for more than 11 years, it's considered a big deal and if you have the ability to put more than 10 percent down or 10 down on a home, you're usually going the route of a conventional loan. So it is super rare.

No one ever talks about it. No one ever markets it for those reasons in particular anyway, come back to the whiteboard all right, let's dive a little further into this mortgage insurance topic. Mortgage insurance rates on conventional loans are determined heavily by credit score. How much you're putting down you know three five, ten fifteen percent and how many borrowers that are there are going to be actually on the loan right.

So the stronger the file, the better the rate you can kind of relate this to car insurance a little bit. If you have a really bad driving record, your insurance rate's going to be a lot higher than your neighbors and also, if you don't have that much of a history or it's just seen as riskier because you're the only one on that car policy. And you don't have like someone with a great driving record, also on it with you, then the rate's going to be higher as well. It's all about managing risk, but on the flip side, fha mortgage insurance rates are the exact same for every single borrower.

The only way to lower this is to put five percent down instead of 3.5 percent and it barely moves. The needle. When you put the five percent down okay, i only recommend it when you absolutely need to do it for qualifying then. Lastly, one of the biggest differences is that conventional has much tighter guidelines for qualifying.

You know in terms of debt to income ratio, assets and credit profile versus fha they're, much more lenient when it comes to these things as again, it's government-backed okay. So now that we have a decent understanding of what a conventional loan is and an fha loan is and a little bit of their differences. Let's talk about who each program is actually designed for. Okay, so, first up we're going to talk about conventional conventional loans are designed for those who you know have good to great credit.

We're talking credit scores, ranging from about a 680 and above kind of depends on the specific situation. But the reason being is you'll. Get a much better mortgage insurance rate which will keep your total monthly payment. Low and conventional loans, as i mentioned, are also better for those who have lower debt to income ratios.

So how do you calculate a debt to income ratio? It's pretty simple! Let's do an example: first of all, you got ta, take your gross income each month. So let's say you make five thousand dollars a month, then add up all of your minimum payments on your liabilities. You have you know things like credit card payments, car payments, student loan payments whatever etc. The important thing is, is we don't really care about the total loan amount or loan balance of whatever kind of debt you have it's more.

So what the minimum monthly payment is. The only time we care about the actual loan amount or how much you actually owe is when it comes into student loans, i'm not going to cover that in this video. Just think about what all of your minimum monthly payments are on. Every single liability that you have so once you have it all added up, go ahead and add your expected monthly mortgage payment to the mix.

So let's just say you know you have a fifteen hundred dollar mortgage uh mortgage payment. Okay, then, once you have that all added up you take the money, you'll be spending each month, add those together, so two thousand dollars and you divide it by the money you'll be bringing in each month. So that's five thousand dollars in this case. That gives you a debt to income ratio of forty percent and conventional loans, typically want debt to income ratios at forty five percent or lower.

Sometimes you can push above that 45 mark, but that's really, if you are stronger in other aspects, you know like your credit or how much money you're putting down, etc and then, on the flip side, fha loans are for those who might not qualify for a conventional Loan or you do qualify for a conventional loan, but your monthly payment is going to be actually lower on an fha loan for whatever other reason in your file, like your credit or maybe the mortgage, insurance or or whatever it may be. Remember the mortgage insurance on fha is the same for everyone. So if you have poor credit, you're not penalized with a high mortgage insurance rate and the debt to income ratio that you can go up to on an fha loan is 56.99. So you can go a lot higher than conventional and it's also better for people who have weaker credit profiles.

Those are really the two biggest reasons on deciding on which each loan program is for which kind of person again they're, both phenomenal loan programs - and it's not like one - is significantly better than the other again. It ultimately just depends on your specific situation and also how long you plan on being in the home. Now, let's talk about how you go about actually qualifying for each loan program because they're a little bit different, but for the most part the meat and taters are like the backbone of the qualifying. Metrics are going to be very similar, but there are some slight differences.

All right so we'll start with conventional ones. Right, you need a consecutive two-year work. History and conventional is just a little bit more lenient on this than fha all right. You can actually use job offer letters or what we call projected income with conventional and you can't do that with fha.

Another thing is, you know you got to have good credit. You got to have low debt money saved up for your down payment plus. You might sometimes need some reserves, which is really just some money left over after closing, and then also monetary gifts from friends and family or whatever are very easy to use. Then, let's flip to fha loans on the other side, all right, you still need your consecutive two-year work history, but job offer letters are not.

Okay, all right! You! You need at least 30 days of pay subs at any new job that you get and there's no exceptions on this. You can have you know, okay to somewhat poor credit, you can have medium debt and money saved for down payment um. You know you still need that, but you don't usually need reserves at all. It's very rare to need reserves on these, and then monetary gifts are still okay but they're a little bit more challenging to use and there's some tighter guidelines on it.

So, like i said, they're both actually pretty similar, it just kind of depends on your situation and your specific needs for kind of how you plan on qualifying for your home loan and again they're both great programs. So now you have some information on each and you can kind of sit there and think which one's kind of better for me and you can kind of get an idea of what to expect. As you start your home shopping process again, there are so many guidelines. I mean thousands of guidelines that kind of relate to each specific scenario.

Everyone's scenario is completely different and you you're not supposed to know all those things. That's going to take you forever and you know it's something that we study for for months and months and months, and it takes years and years of practice to really fine tune and get our craft down. So i don't expect you to know every little detail about every single loan program. That's what we're for again.

I can't stress it enough that this video is just for a broad overview. There's so many other things that we didn't even discuss like if you're buying a second home or an investment home and how guidelines change for both of those on each of that, and and so many other things like if you're w-2 versus self-employed and what kind of You know job history, you might have maybe you're 10.99. I mean there's so many different things. So again, i just wanted to give a 10 000 view.

You know kind of idea of the differences between a conventional and fha loan because it's probably the biggest asked question that i get at least for first-time homebuyers, but i love being able to help you guys. That's why i make so many videos on credit, because credit is another beast in it of itself and when you talk about qualifying it's like a whole other thing, it's a whole other thing don't even want to get into, but that's why again, it's really important to Talk to a mortgage broker who actually knows what they're doing i'm not saying that you go talk to a massive company with these call center reps, like all these companies you're seeing right here. These people are there just to answer the phone and to close a deal. They don't have your best interest in mind.

A mortgage broker is going to take your specific scenario and tell you specifically, which loan program is going to be the absolute best for your scenario and that's going to save you as much money as possible. So it's really really important, but that is the quick and dirty on conventional versus fha. Hopefully, you'll learn something new. If you have some questions feel free to drop them in the comments down below and i'll try to answer as many as possible.

Definitely trying to just give you a clearer picture on the differences of conventional versus fha, and i also recommend that you check out some of my other mortgage related videos linked down below in the description. That'll help give you a super clear picture on the entire process and you knew this part was coming, but i put out so much free content on this channel and i would really appreciate if you can hit that like button and also subscribe, become my friend. So you can see more content like this. It would mean more than you can even imagine either way.

I hope you enjoyed the video good luck with the home financing and i will see you in the next video you.