FHA
VS. CONVENTIONAL
FHA (Federal Housing Administration) loans and conventional loans are two popular mortgage options, each with distinct features. FHA loans, backed by the government, typically offer lower down payments (as low as 3.5%) and more lenient credit requirements, making them attractive to first-time homebuyers or those with less-than-perfect credit. However, they require mortgage insurance for the life of the loan. Conventional loans, on the other hand, are not government-backed and often require higher credit scores and larger down payments (usually 5-20%). While they may have stricter qualification criteria, conventional loans can be more cost-effective in the long run, especially for borrowers with strong credit, as private mortgage insurance (PMI) can be removed once the loan-to-value ratio reaches 80%.
FHA
Pros:
• Lower down payment (as low as 3.5%)
• More lenient credit score requirements
• Higher debt-to-income ratios allowed
• Competitive interest rates
• Assumable by future buyers
Cons:
• Mandatory mortgage insurance for the life of the loan
• Limited loan amounts
• Property must meet strict FHA standards
• Potentially higher overall costs due to insurance
• Seller may be less inclined to accept FHA offers
CONVENTIONAL
Pros:
• No upfront mortgage insurance premium
• PMI can be removed once 20% equity is reached
• Higher loan limits
• More flexible property types allowed
• Potentially lower overall costs for well-qualified borrowers
• Multiple loan term options available
Cons:
• Higher credit score requirements (typically 620+)
• Larger down payment usually required (typically 5-20%)
• Stricter debt-to-income ratio limits
• May have higher interest rates for less-qualified borrowers
• Less flexible for those with recent financial challenges
NON-QM
Empower
Growth
Pros:
• Flexibility: More flexible qualification criteria than traditional mortgages.
• Alternative Income Verification: Ideal for self-employed individuals or those with non-traditional income sources.
• Higher Debt-to-Income (DTI) Ratios
• Diverse Property Types
• Jumbo Loan Options
• Interest-Only Options: Some non-QM loans offer interest-only payment periods.
Cons:
• Higher Interest Rates
• Larger Down Payments
• Potentially Risky Terms: May include features like balloon payments or negative amortization.
• Less Standardization
• Shorter Loan Terms: May have shorter repayment periods than traditional 30-year mortgages.
• Limited Borrower Protections
• Potential for Higher Fees
.• Stricter Prepayment Penalties: Could have more severe prepayment penalties than conventional loans.
• May be harder to Refinance
DSCR
Pros:
• Property Income Focus
• Easier Qualification
• No Tax Returns Required
• Scalability
• Flexible Property Types
• No Limit on Number of Properties
• Potentially Lower Interest Rates
Cons:
• Higher Down Payments: Usually require larger down payments (typically 20-25% or more)
• Stricter DSCR Requirements
• Higher Interest Rates
• Prepayment Penalties
• Limited to Investment Properties
• Potential for Higher Fees
• Vacancy Risk
• Market Dependency