Drew 2: The difference in FHA loans vs Conventional loans in regards to the downpayment.

8 Aug 2023 · 2 min

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In this short video, Drew (Drew Two) explains the key differences between FHA and conventional mortgage loans as they relate to down‑payment requirements, with a focus on how these rules affect listing agents. He notes that FHA loans require a 3.5% down payment for 1‑4 unit properties, but for 3‑4 unit homes they also trigger a self‑sufficiency test that demands the rental income alone cover the mortgage—making FHA financing virtually impossible in today’s high‑rate, high‑price market. He then outlines conventional loan options: 3% down for first‑time buyers of single‑family homes, 5% down for 2‑4 unit properties (subject to income qualifications), and higher‑tier 15% or 20% down loans that have no self‑sufficiency test. Drew advises listing agents to be aware of these constraints and to prioritize conventional loan offers when marketing multi‑unit properties, emphasizing the importance of working with a knowledgeable loan officer to navigate the complex rules.

Chapters

Hey now, Drew 2 time. I want to talk about FHA loans and conventional loans, specifically the differences between them, and today's focus is the down payment. If you are a listing agent, I need your attention here because there's something that's going on in the market that's affecting your listings. Let's look at FHA loans first and their requirements for the down payment. So FHA loans, 3.5% down, right? Everybody knows that. 1 to 4 units. However, on the 3 to 4 unit properties, there is a self-sufficiency test. Yeah, this self-sufficiency test states that the units have to support the mortgage payment by themselves without borrower income, and if it doesn't, then your borrower doesn't qualify. So if you're a listing agent, you've got a 3 to 4 unit property on the market, if you get any FHA loan offers, They can't work when the rates are high and values are high. This is impossible. All right, maybe there's some exception out there somewhere, but 99.9% of the time, this cannot work in this environment. Be aware of it. Self-sufficiency test. Now, for down payments and conventional loans, let me show all the options we have here. Wow, look at these. There's several. I mean, there's a 3% down loan for single-family homes. Yes, if you're a first-time home buyer, And the other one I like is this 5% down, 2 to 4 unit. However, there is some income requirements here. If you don't meet those, 15% and 20% are your options, and no self-sufficiency test. Whew, man, there's so much rules to these things. How do you keep them all straight? You got to work with a good loan officer. But if you're a listing agent, please be aware of those FHA loans and make sure that your conventional loans are getting priority. Hey, hope you enjoyed today's Drew Two. We'll talk with you soon.