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in Tracy, CA
Tracy buyers face a real choice between conventional and FHA financing. Both get you into a home, but they work differently on down payments, insurance costs, and credit requirements.
Most Tracy borrowers I work with assume FHA is always cheaper. That's not true once you factor in mortgage insurance over time. The right answer depends on your down payment size and credit score.
Conventional loans require 620+ credit and typically 5-20% down. You pay private mortgage insurance (PMI) under 20% down, but it drops off once you hit 20% equity. No government backing means lenders set their own guidelines.
Lower mortgage insurance costs make conventional loans cheaper long-term for most Tracy buyers. If you can swing 10% down with decent credit, you'll pay less monthly than FHA. Rates vary by borrower profile and market conditions.
FHA loans work with 580+ credit scores and just 3.5% down. You pay 1.75% upfront mortgage insurance premium plus annual premiums for the loan's life. The Federal Housing Administration insures these loans, so lenders accept higher risk borrowers.
FHA shines for Tracy buyers with under 10% down or credit scores below 680. The flexible credit standards help first-time buyers and those rebuilding credit. Just understand the mortgage insurance never drops off on loans over 90% LTV.
Down payment separates these loans first. FHA wins at 3.5% down versus 5% conventional minimum. But conventional loans from 5-15% down usually cost less monthly because PMI rates beat FHA mortgage insurance.
Credit score matters more than most Tracy buyers realize. Below 680, FHA rates compete well. Above 700 with 10% down, conventional saves you $100-200 monthly on a typical Tracy purchase. Mortgage insurance structure creates that gap.
Choose FHA if you have under 10% down or credit below 680. The flexible approval standards and low down payment outweigh the higher insurance costs. Tracy first-time buyers often start here then refinance to conventional later.
Go conventional if you have 10%+ down and 700+ credit. You'll pay less monthly and build equity faster without permanent insurance. I run both scenarios for Tracy clients to show the five-year cost difference.
Yes, refinancing to conventional once you have 20% equity eliminates FHA mortgage insurance. Most Tracy buyers do this within 3-5 years as home values rise.
Both take 25-35 days typically. FHA appraisals add stricter property requirements, but timeline differences are minimal with experienced lenders.
San Joaquin County FHA limit is $644,000 for 2024. Conventional goes higher to $766,550, giving more range for Tracy's pricier neighborhoods.
Conventional usually costs less at closing. FHA's 1.75% upfront insurance premium adds $3,500-7,000 depending on loan amount.
Yes, it shows in your offer. Some Tracy sellers prefer conventional because FHA appraisals require more property repairs before closing.