Bryan Kelly, Wintrust MortgageA couple years ago, FHA had 2% of the market as far as mortgage products originated. Today, FHA loans account for 40%, that number is still growing, and there is a reason for it (see comparisons below, as FHA allows more people to qualify).   Unless a seller wants to lose 40% of its prospective buyers, they really want to consult with their legal council about getting their condo project FHA approved.   The bank I work for is delegated from HUD to assist with this process.

Here is a quick overview of the major differences between Conventional and FHA loans

Conventional Loans
FHA Loans
5% Minimum Down Payment 3.5% Minimum Down Payment
If less than 20% down, then 5% down
must be from primary borrowers own funds

No minimum down payment from primary borrowers own funds.   All down payment
funds can come from gift from family or
from Down Payment Assistance Programs
(Yes, Down Payment Assistance
Programs are available, but they work
with FHA loans only)

Borrower may incurs one time fee at
closing when credit scores go below 740,
and the fee ranges from 0.25% to 3.0%
of the loan amount)

Borrower incurs one time fee when credit score goes below 660, and the fees are nominal (0.25% of loan amount)

Borrower incurs one time 0.75% fee at
closing if borrowing more than 75% of properties value on condo purchase

No additional fees for condo purchase

Private Mortgage Insurance (PMI) required if
less than 20% down

FHA Mortgage Insurance always required
on 30 year amortizations
PMI companies now have their own

FHA Mortgage Insurance follows
Automated Underwriting Approval –
no additionalhurdles to jump through
to get FHA Mortgage Insurance
680 middle credit score (some lenders
have “overlays” and require 720 middle
credit score)
620 middle credit score needed
41% max monthly Debt To
Income (DTI) Ratios

Max monthly debt to income ratio (DTI)
is determined by automated underwriting system, and is very likely to go much
higher than 41%
Non-Occupying co-borrowers income will
not be counted towards DTI Ratios – Parent co-signing does not help with DTI qualifying

Non-occupying co-borrowers income will
be blended with primary borrowers
income and counted towards DTI ratios,
which will help more borrowers qualify
Monthly PMI is pretty expensive when
putting down less than 10%

If putting down less than 10%, FHA’s
monthly mortgage insurance costs are significantly cheaper than Conventional
loan’s monthly PMI, resulting in a lower
total monthly housing payment for
borrowers, meaning they can afford
higher purchase prices and sellers can
sell higher.

Bryan Kelly, Sr. Mortgage Consultant at Wintrust Mortgage

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