“Switching FHA to Conventional and Conventional to FHA When it is Appropriate”
Two days before we were closing Erika’s mortgage, the lender ran a new credit report and her scores dropped 100 points, from 760 to 660, because of the drop in scores, instead of getting a 3.125%, 15 year conventional loan, her rate would have to be increased to 3.5%.
I recommended that we convert the loan to an FHA loan. Even though there was a 1.75% mortgage insurance premium added to the principal balance, we had to do an FHA appraisal and it would take more time before we close, these were the negatives. The positive was that her interest rate was 2.875%.
Her monthly payment ended up being almost identical, so in this case it made sense to make the switch instead of paying a higher monthly payment.
Our responsibility is to make sure that our clients end up with the best possible result, no matter how much extra time it takes. It is all about the math, if it is in the best financial interest to switch loan products, then that is what needs to be done.
FHA has released the most recent FHA Single Family Outlook – Single Family Operations – August 2012. The report is proof that FHA has been very busy this year with refinances, as well as, home purchase loans. As popularity for FHA loans has grown since the housing crisis, FHA refinance volume is up over last year and can very well be on its way to a record.
For the month of August, 90,880 single family refinance applications were submitted. Of these, 72,066 were prior FHA cases and 18,814 were conventional conversions to FHA. This represents more than three times the amount of applications for the prior year (21,724). Of the prior FHA cases, two thirds were for the FHA streamline refinance which offers reduced upfront and annual mortgage insurance premiums.
While FHA refinances were booming, 71,428 total purchase mortgages were endorsed in August. Of that number, 55,617 were for first time home buyers (three out of every 4 purchase transactions).
For FHA refinance transactions endorsed, 42,607 were prior FHA mortgages and 7,894 were conventional conversions. Prior FHA cases using the streamline process totaled 92.8%. Of the conventional conversions, cash out accounted for 2,317 and 107 were short refinance transactions (FHA Refinance of Borrowers in Negative Equity Positions).
Up to date this year, FHA has insured 1,130,717 single family mortgages. This includes 677,175 home purchase loans and 402,415, with the balance being for reverse mortgages. A total of 7,691,770 FHA mortgages were in force at the end of August 2012.
FHA has and continues to play a major role in the housing market. While giving home buyers the chance to purchase a home with lower down payments and easier qualifying, it has brought consumers back to attaining homeownership. At the same time, it has helped countless FHA mortgage holders refinance to lower FHA mortgage rates through its FHA streamline refinance program and for many, has given them the opportunity to do so with lower mortgage insurance fees. In addition, FHA has also helped a large amount of conventional loan holders to refinance to better rates and terms. The numbers are proof that FHA mortgages have been a lifeline during the housing crisis and will continue to be during the housing recovery.
FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee.
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