Dave: You are spot on with regard to your observation regarding the purpose of the licensing course. You will learn a lot about the laws and some very basic mortgage knowledge, but little to help you succeed and really help clients. Your question is a good place to start, and I am sure you have about a thousand more, but we will have to start with question one.

There are many differences with regard to FHA versus conventional loans. The qualification standards are different. So are the loan products available and the costs, such as mortgage insurance. For example, if someone is comparing a 30-year fixed FHA loan to a conventional loan, the product difference is mostly eliminated. On the other hand, there are other factors that come into play. For example, the down payment being made and their FICO score may dictate which is a better choice.

To illustrate, if their FICO score is 620, the loan may not score for a conforming program, but you may get an approval for an FHA loan. On the other hand, if the client is putting 20% down, there will be no conventional mortgage insurance, but FHA mortgage insurance would still be required. Thus, lower scores tend to go FHA and larger down payments almost always go conventional, although this is an oversimplification. Even if you are putting 10% down, a conventional loan would likely win out because conventional mortgage insurance is cancelable within two to five years under certain circumstances, whereas FHA mortgage insurance must be charged for at least 11 years (at 10% down) or forever (less than 10% down).

Many harbor the misconception that FHA is the primary program for low down payments for those who are not VA qualified. However, this concept is outdated because conventional programs exist for as little as a 3.0% down payment, lower than the FHA required 3.5% minimum down payment. Fannie Mae and Freddie Mac both offer 3.0% options through their HomeReady® and Home Possible® Programs, in addition to a 5.0% down option for those who do not qualify for these programs.

You will also see a much wider variety of options through conventional financing. For example, you can finance owner-occupied second homes and investor transactions through conventional financing. FHA is primarily for owner-occupied financing and will only allow second homes under some very stringent exceptions. In addition, within areas of the country that are not defined as "high-cost," the FHA base loan amount is 35% lower than the conforming loan amount. Thus, in a low-cost area, conforming will allow options for higher priced properties. In the final segment, we will cover additional differences between FHA and conventional programs, with a focus upon mortgage insurance requirements and options.

Dave Hershman is Senior VP of Sales of Weichert Financial and the top author in the mortgage industry. Dave has published seven books, as well as hundreds of articles and is the founder of the OriginationPro Marketing System and Mortgage School – the online choice for expert mortgage learning and marketing content. His site is www.OriginationPro.com and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..