Missoula Home Buyers: FHA loans 101 - The basics of FHA mortgages & mortgage shopping - 10/13/09
Great information on how to compare loans and what you should know about FHA loans from our friend Jeff Belonger.
FHA loans & their misconceptions/myths
The number one myth - FHA loans are more expensive than conventional loans!! - FALSE -
Protection of your family & home purchase will always be with a loan officer with knowledge & integrity… not telling you what you want to hear to make a sale!!
PS… this might be a tad long & boring, but worth it if you are buying/refinancing a home.
I received this e-mail from a borrower yesterday buying in WA. Here are some parts of his e-mail.
Borrower #1
"My real estate agent simply told me there would be more closing cost if I chose FHA, which I don't think true."
A major gripe of mine. When comparing a FHA loan to a conventional loan, you need to compare apples to apples. The only difference would be the upfront mortgage insurance premium (UFMIP). Some loan officers and realtors would like to call this a closing cost. It really isn't. First off, you can roll it into your loan. Hence another myth that some FHA closing costs can be rolled into the mortgage. Still false, because this is not a lender fee. It's a fee from HUD. Yet some will debate this as a closing cost. It's like the VA funding fee or the USDA's guarantee fee.
Same person goes on to say...
"XXXXXXX mortgage is the preferred lender to the property and now offering 4.25% for 30 years. Since my house won't be ready til next spring, XXXXXXXX mortgage can't lock the rate that far. I was told they were not sure how much the rate would be then. This part is very scary to me as a first time home buyer without any previous experiences....!!!"
Rut row.... first off, you can't get a 30 yr fixed rate that low. And even if you could, it would cost you like 8 points. So, this loan officer plays the trump card per say. Knowing that settlement won't be until next spring. This lender is giving an awesome rate that can't be locked in... hhhhmmm
Borrower # 2 -
I have a borrower that was referred to me by a realtor. She gives out 3 names to her clients. (there is a reason for this that I don't totally agree with) I shouldn't have a problem with this, but I do. In most cases, most loan officers can be very competitive, especially when they know you are shopping. This realtor prides herself on giving good referral sources that close on time and give good rates with fees. Okay for now, but I have a point to this.
This borrower wants a 30 yr fixed and a 5/1 arm. I give him several good faith estimates and find out that mine are in the top two. I then get an e-mail from the borrower who wants me to be lean on mine, because he was able to get the other lender to cut a few fees. Huh? First off, I had a $100 fee and this other person had close to $1,000 in fees. Secondly, I will never be the cheapest, but I will be better than average. In many cases, I will give more knowledgeable information than the other loan officers involved. Okay, sounds like I am full of myself. But after years of asking the borrowers questions and getting feedback, so many things aren't mentioned.
Example - I ask this person their goals, how long they think they will be in the house, baring any work related changes. He tells me that I bring up some excellent points to think about. Because I bring up current rates, the future of rates in 3 to 5 years, home values, the cost of refinancing, etc,etc. Gee, from his answer, it doesn't sound like the other loan officers bring this up.
FHA myth - the monthly mortgage insurance will never fall off. It does just like on conventional loans.
FHA fact - No matter how much you put down, you will have the mortgage insurance for 5 years no matter what. He said, well, I hope to have more equity in 3 years. Good for you, but if you refinance into another FHA mortgage, you will then have the MI for 5 more years. Okay, so I will go conventional. Good for you, again. But there are many new rules regarding private mortgage insurance. In many cases, the PMI companies want to now see a 2 year history of payments. If late, this could influence their decisions. Again, just so many unknowns to risk.
Onto round 2.... In the beginning, I just give him a 5/1 arm and not details of how an adjustable works, because I want to see if my competition does. After about 4 days of him shopping, I have him call me Sunday night around 7 pm. I ask him if he was told how adjustables work and if he was told the margin on this adjustable. What is a margin Jeff.. hhhmmm.. Just a fact that could have an impact on his decision and his future.
Onto round 3.... The good faith estimate. I always tell the client how long that rate is good for when giving a GFE, showing their rate and fees. Many loan officers don't point out that it's good for 30 - 90 days. And if they do barely mention this or they don't bring it up again a few days later, when they give you an updated good faith estimate. I know this because I question and quiz these borrowers. Overall, until you are ready to proceed with the mortgage application and lock-in, some of these good faith estimates don't mean squat.
Overall, there are more loan officers than one would think that don't properly educate the borrower. As a borrower, you don't need a Harvard education, hence why you want to speak to a good loan officer an excellent loan officer. I found many holes in my questioning of this borrower, telling me that he wasn't properly educated with buying a home and shopping for a mortgage. My 30 yr fixed rate with fees were better than the other two. Yet one offered a very good price for the 5/1 arm. I later refused to give him an updated quote, because after speaking to him and getting to know his goals, it wasn't in his best interest. He was suckered into the lower payment. Don't get me wrong, adjustables have their place, especially with today's rates. But again, the best rate on paper is not always the best in the long run, no matter if it can be offered or not. Knowledge is power!!!
Just don’t be that shopper that shops themselves out of that good mortgage.
For some more good reading :
The Basics of FHA Loans - Mortgage 101 for FHA Mortgages - 08/24/09
Credit scores - FICO scores for mortgages - I need a 700 credit score?
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Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc
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