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FHA Loans vs. Conventional Loans

 

FHA Loans vs. Conventional Loans

Compare FHALoans Conventional


FHA Loans - Rates are lower than Conventional
The main advantage to FHA home loans is that the credit qualifying criteria for a borrower are not as strict as conventional financing.
FHA mortgage loans will allow the borrower who has had a few "credit problems" or those without a credit history to buy a home. 

One of the best aspects of FHA loans is that buyers only need 3.5% down, eliminating the need for the riskier piggyback loans some use to cover high down payment requirements. Additionally:

The 3.5% can be paid by the seller or come from friends, family members or grants.

The closing costs can also be included in the loan. Unlike a standard mortgage loan, FHA allows a cosigner who does not live in the house for a financial boost. There are FHA loans specifically designed to assist buyers with HUD home repairs. (However, under FHA rules, the borrower must live in the home - they do not finance investors.) FHA interest rates now run very close (if not equal) to market interest rates. The paperwork is only slightly more (a page or two) than your traditional loans.

FHA Loans in Louisiana were created by the federal government to provide affordable housing financing for qualified borrowers. FHA provides 100% of the loan, the lender eliminating risk. The borrower pays an initial insurance premium, which is approximately 1.5% of the loan amount. This amount can be absorbed directly into the loan amount. The borrower also pays a monthly premium of .5% of the loan amount divided by 12 months. FHA requires deposit of 3%. This money can be a gift. No reservations are necessary. Closing costs can be funded in the amount of the loan.


Borrowers must provide proof of income sufficient to demonstrate the ability to pay the mortgage. FHA Loan guidelines are more relaxed, for example, a bankruptcy, which was unloaded at least 2 years, the use of other forms of credit (utilities, cable TV, auto or medical insurance premiums, caring for children, school fees, furniture or appliance store accounts) Place of traditional credit, and higher ratios of debt to income. FHA interest rates are extremely competitive with conventional rates.


Fannie Mae conventional mortgage loans in Louisiana are loans made at the risk of the borrower, without the benefit of any warranty insurance or government. A conventional mortgage with a LTV (loan to value ratio) of more than 80% requires primary mortgage insurance, which can be paid monthly. The borrower must have 5% of its own funds for the payment and 2 months reserves of the deposit. Closing costs should be paid by the borrower.
requirements for a conventional loan include an excellent candidate to credit, job stability with sufficient income, a significant down payment, and a low debt to income. Borrowers who meet Fannie Mae guidelines are rewarded with an interest rate slightly lower than an interest rate FHA.

Example Mortgage Loan Programs in Louisiana
  FHA Loan   Conventional Mortgage Loan
Maximum Loan Limits per County Yes   No
Mortgage insurance included in loan Yes   Not always
*Maximum purchase loan 97%   107%
Rate depends on Credit Score No   Yes
Seasoning requirement for bankruptcy 2+ yr None with some programs
Seasoning requirement foreclosure 2+ yr   Varies on program
Open Collections None   Varies on program
Drop mortgage insurance with equity No   Yes
Non-verified (stated) income programs No   Yes
Streamline refinance Yes   No
Non-occupant cosigner Yes   No
       
* There is a 102% FHA Loan program - 97% first mortgage and a 5% second mortgage.  Qualification for the 5% second mortgage Loan is based on low income limits set per county. FHA VS CONVENTIONAL LOANS
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