Do you want to buy a multifamily home? Are you confused and wondering whether to apply for a conventional loan or an FHA home loan that is offered by the Federal Housing Administration and offered by the FHA-approved lenders? You must understand the difference between the two loan types. The home loan program that you will ultimately choose depends on various things, including the type of home you want to buy, your financial resources, and the trade-offs you are willing to make between the benefits that FHA and conventional loans offer.
Are you wondering whether to opt for an FHA loan multifamily 4 units with a 3.5% down payment or for a conventional loan type? This comparative study will help you to make a wise decision.
- FHA vs. Conventional Loans: down payment requirements
FHA loans have long been touted as the ideal option for the homebuyers who don’t have a significant amount of cash for a down payment. It is possible to purchase a multifamily home with as little as a 3.5% down payment through the FHA home loan program. Traditionally, a 20% down payment has been the standard for conventional loans. Besides, with an FHA loan, you can accept the down payment money as gifts from your family members. So, an FHA is a better choice than a conventional loan program.
- FHA vs. Conventional Loans: getting approved
In part because of their low down payment requirements, FHA loans are easier for the ones who have less-than-perfect credit to obtain. In case you have a bankruptcy in your past or your credit score is not in the top part of the range, you can still qualify for an FHA home loan program. Another difference between the loans is that you can take the help of a co-borrower with an FHA loan program. You can score an FHA loan with the help from a blood relative, who will not live with you in the home but will help you with the payments. When you partner with another one, your income and debt levels will be combined into a single debt-to-income ratio for calculating your creditworthiness. So, getting approval with an FHA loan is easier than a conventional loan program.
- FHA vs. Conventional Loans: loan limits
How much you can borrow matters a lot when you compare conventional vs. FHA loans. Generally, FHA loan limits are determined based on where you plan to purchase and the median home prices in that area. Conventional loans typically adhere to the same limit, regardless of the market you are buying in. These loans also differ in the types of property you can use for them. For instance, a conventional loan could be used to purchase a primary residence, rental property or a vacation home. But with an FHA loan, you have to ensure that you live in that home full-time. Along with a single-family home, an FHA loan can be used to buy a multifamily home.
When you compare closely you can easily understand that FHA is a far better option than a conventional loan for a low down payment and lower credit score requirements. Besides, with an FHA loan, the mortgage rate is lower. And so, you can save a lot over the life of the loan.
To get a real-life example, consider this – a house was sold on 12/13/2019 at 3714 Gager St, Houston, TX 77093 for $450,000 with 6 bedrooms and 6 bathrooms and the total size of the MultiFamily of 4 Units home is 3,564 Sq Ft. With FHA Loan Multifamily 4 Units, the down payment would be only 3.5% or $15,750 and the loan amount is $ 258,138 and the cash to close including closing costs could be $12,009.01. After going through the details, you should make your decision. Without working any further, start working to realize your dream.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.