FHA loans vs Conventional loans - Don't be cash poor!! - Part 2 of 3

JAYNE.... . wow, well, thank you very much. I just love putting numbers together such as what I did above. Sure, there are several ways that you can look at this and argue why you should put 20% down. But my argument is that many loan officers don't go into the details, to allow their borrower the ability in making a sound decision. Just my opinion on that.  And yes, we all need to pitch in and educate borrowers and other real estate agents on FHA, the pros and cons... and to dispel those myths.  In any case, thanks for the polite compliments.

TIM... .  thanks.. it's always great to hear from a fellow loan officer that actually agrees and understands your post.  And yes, there are even more add-ons on conventional loans with other types of properties and or when it came to types of loans.  Just as a conventional cash-out... thanks for your input, for the polite compliment, and for the heads up in regards to my misspelling in the subject.  thanks

CATHERINE.... . so based on your comment, I have a question for your. Are you saying that the borrower should do a 5% conventional loan just because it's easier, even when buying that property? Even if it could cost them more money in the long run?  Just food for thought... because here is a semi myth... or an example of the lenders that helped your clients. When there was weather related repairs, they had a grace period until the weather warranted the repair.  Sure, many lenders did not exercise this or explain this to the borrower or even the realtors.   But here is my problem.. this is part of the reason to why we are in the mess that we are in today, because many loan officers did the same to their clients, giving them a subprime loan and or a conventional loan, just because it was easier, even though it cost the borrower more money in the long run. I do appreciate your comment and your feedback. This was not an attack, but just making a strong point, because I hear this often, more than I should hear about.

PS... my whole point to other lenders... you could have such repairs held in escrow, especially when common sense says that paint won't hold well when it's below a certain temperature. I blame part of your story to those loan officers and lenders that either were lazy or didn't know any better... yet also to some realtors that went along with it, even if it wasn't in the borrowers best interest.  Read some of my blog posts on 5% down comparisons... this will show you how much more this could cost the borrower, even with high credit scores.. thanks

GENE... it's always nice to have extra cash. I think many think if you put 10% more down, that you will save a lot more monthly. Not always, or always as much. But it does depend on the loan amount also.. thanks

ANDREA.... .  I do all loans, even USDA loans...  but you can't compare USDA because of two main reasons... they only fit certain geographical areas and that there is an income cap. And here is my argument to why FHA loans have such a higher delinquency rate. Please read : Should we ABOLISH FHA loans?  thanks

ANDREA.... get a chance, read the blog that I listed above in my comment to you, titled... should we abolish FHA loans. My same argument even goes for FHA loans, that many loan officers, especially when we had subprime loans, took borrowers the conventional or subprime way because it was easier for the loan officer... or in some cases, because they didn't know FHA guidelines. I even know this first hand, because I heard loan officers on the phone and that I would question them. Wow, some of the answers that I received.  Same as you mentioned about USDA loans. What state do you work in? To be able to do USDA loans almost anywhere in your state, would be a great problem for me to have, because then I could give all options.

ANDREA... . comment # 26 ... . especially since you were better in rate and in-state.  Did the person at least tell you why they were still going with the other person?  I will say this... I even showed a client that the lender originally lied and bait & switched them.. and that I was still lower after it was all said and done.. but some people's thinking and or loyalty is ass backwards. This borrower said.. well, they have been working on my loan, so I am going to stay with them,,, wow.. sad... 

On another note, are you a member of Active Rain?  If so, what is your profile under and if not, send me an e-mail.  My e-mail link is up top on the right and or on my profile page.  thanks

ERIC... .  thanks for the kind words.. but not only for realtors,but most of all, for the borrower. ;o)

KAREN... . thanks for the compliment... but I will say one thing about your comment here..."I'm just happy with any loan that a buyer can get to closing with!"

In my opinion, that is not the best way to look at things... I know of many loan officers that used that same line of thinking and would put borrowers in loans that were easier for the loan officer, yet were more expensive in the long run for the borrower. I am just trying to make a point in regards to that.. thanks

GARY... . thank you very much for that polite compliment.  And you hit the nail on the head, in regards to who should be giving what advice and quoting specific mortgage programs and interest rates.. thanks  For any of you that have missed this, Gary Miljour wrote about this in here and is doing a series on this.

Please read : Mortgage Originating Licensing - It's not advice, it's the law

WESLEY.... . you bring up an excellent point that not as many loan officers truly understand what FHA's are about, especially in this environment. And yes, many of these LO's will not be around down the road. But worst of all, I think it comes down to basic math and how you should ask your clients their goals and how to compare the differences. I explained some more of this in my part 3. Overall, thanks for your kind and detailed compliment and comment.

CARI & DOUG... . Doug, we never really needed the 100's of mortgage programs. We got greedy and we are paying a high price for that greed. But it's not even the consumer crunching these numbers, but the loan officer that understands all of this. Thanks for the compliment.

LYN... . yes, the loan officer should be able too know and understand these comparisons.. and to supply them to the borrower. Maybe not in this fashion and or in this kind of detail. But knowing what to tell the borrower and why is my main issue and concern. And thank you very much for such a very kind compliment.

Please read this series on FHA Loans on how to save money & use your money wisely.

• FHA loans vs Conventional loans - A real comparison with 20% down - Part 1 of 3 - 01-28-10 - Not much of a difference, unless you stay in the house for more than 5 years. Hence why a loan officer should be talking about your goals. So very important, yet many dont ask.

• FHA loans vs Conventional loans - Don't be cash poor!! - Part 2 of 3 - 01-29-10 I want to show even a bigger difference if you put less down. And even if you decided to put less than 10% down, because cash is king now. You can't predict even next week. And keeping in mind of some misleading rumors, that you need more than 10% down to buy a house.
  

• FHA loans vs Conventional loans - Get a bang for your buck - Large down payments aren't always the best way - Part 3 of 3 - 02-03-10 - Some great examples of having cash left over and not really affecting your monthly mortgage payment. And that you will have cash left over for emergencies. Keeping in mind that cash is king.

MATT... as much as I appreciate your comment and respect your opinion, I basically couldn't disagree with you more on 2 major things that you brought up.

First off....  for most of what you mentioned in regards to the years, from 1940 to 2005...  we have truly never experienced this kind of economy with unemployment up to 10%... and for a few good years, that it was around 8% to 8.5%. Just this alone, for the fact that many more would be out of work, would create more foreclosures. Sure, we can argue the fact that there have been some that have walked away from their house because they had no equity... and these same people could have paid for their mortgage payments still.  But I also knew a few personally that had put down 20% 2 years ago, when they bought their house, and ran into financial difficulties and have lost their house. 

In regards to your comment about wasting money on mortgage insurance?  Okay, so if we made it mandatory for everyone to put 20% down or more, the real estate economy would be DEAD.  Secondly, if that happened, the U.S. would fall apart and become broke. Now, all of this is my opinion. But even if you have 20% to put down on your home, there is more to it than that.  Do they have 4 times that amount left over in their bank account or in liquid-able assets?  And even so... I will still say that I would recommend for someone to put less down. If you want to get technical, I know of some really good financial planners that could get you a better return than what you are paying on a mortgage at 5% and even 6%.

Lastly, on top of that comment, that I shouldn't be advising people this, you can't predict the future... a lot of what ifs and uncertainties out there. I would rather my client be safe and understand the money, than to liquidate what they have and maybe be cash poor. Your statements are very general in my opinion, without using examples.  Such as... sure, I would put 20% down if I was buying a $300,000 house and that I had 1 million dollars in specific accounts. Sure, I didn't go into detail about this, but I did talk about investing some of your left over money.... the average person doesn't have a large savings... when your grandparents and even my parents first bought, times were much different.  You can't even respectively compare 4 years ago to now, so why 30 years ago?  Or 50 years ago?  Just my opinion and thanks for your feedback.

GARY... .  thanks for your input.  I want to add a little to what you had stated... nice job of bringing up the loss of equity after putting 20% down.  I kind of missed bringing this up because I got carried away with some other issues. But as you know, I have written about that part several times.  thanks

MATT.... .  I want to make one thing clear.  We all have opinions and such. You apparently have a different opinion than what Gary, myself, and many others in these comments have. I am not replying back to be negative or bitter to you.  One of the mean reasons why I love blogging is that I can express my insight and opinions, and also to teach others about the financing side of things.

In my last comment, I got carried away with a few things and forgot one of the more important things on hand that Gary brought up.  What about those that did put 20% down and lost 30% to 40% equity in their home after the fact?  What do they have now?  I will say this, you can not use even 5 or 10 years ago in your comment and try to compare apples to apples.

Gary also brought up another point, about some mortgage programs made it easy. I will agree with your argument that lending was easy for some... but that was the subprime market and some Fannie Mae loans such as the 100% loan that allowed some borrowers to go as high as 55% for the debt-to-income ratios on their back end qualifying ratios.  First off, that is very high, especially on 100% financing.  But you know what, you can blame the gov't for this.  President Clinton was the one that pushed Fannie Mae & Freddie Mac to make home financing more affordable and all of that is recorded as fact.

Overall, one more point that I wanted to make..  you try and make an argument for more money down.  What about such programs as the FHA loan,the USDA loan, and the VA loan that allows for little to no down payments. The USDA loan & VA loans allow for a borrower to put no money down.  ALl 3 loans mentioned had a small default rate / foreclosure rate up until the last 3 years.  And the reason why FHA is much higher now is because more people are using FHA loans, since the subprime market disappeared and because the 100% Fannie Mae programs have dropped off.  Please read this post :

Should we ABOLISH FHA loans?

Thanks...