The mortgage industry is changing right in front of us, basically on a monthly basis now. Which is why you need the advice of a mortgage professional and not an order taker. The word conventional mortgage doesn't mean that great rate or wholesome loan, that it did just several months ago. Don't be fooled by your typical loan officer or lender telling you otherwise. In many cases, your rate could be much higher on a conventional mortgage than on a FHA mortgage. To get a better understanding why this might be possible, please read FHA mortgages are better than conventional mortgages -- Why is that?

What I wanted to share with you is a basic example of someone putting 5% down on a home. Keep in mind that these examples can be used for refinances also, depending on how much equity that you have to work with. And keep this in mind, you need as little as 2.25% equity in your house to refinance with a FHA mortgage as opposed to 5% equity when it comes to a conventional mortgage. And you can include your closing costs up to 97.775% on a FHA mortgage, where as on a conventional mortgage you have to pay for your closing costs after you reach 90 LTV%.

The figures that I am about to show you are based on a $250,000 purchase price with 5% down. One reason why conventional rates are a little higher in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and your credit score is less than 680, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 650, because this score is still above the general average. 

Disclaimer :  These rates are just an example and can change because of various market conditions and are based on a 30 year fixed rate of today. The fees would be the same and with zero points, so to compare this scenario as apples to apples. The conventional rate also includes the penalty for the 650 credit score.

Some of you might be saying that you will be adding $3,562 onto your principal balance if you did the FHA mortgage. This is correct and I don't want to confuse you with more numbers and charts. But here is a quick breakdown. If you kept your house for 5 years, which most people sell in a 6 year period, you would have saved $8,914.20 in that time period. This is a difference of $5,352.20 that you have saved. And one other thing that is very small, but still makes a difference. You will be subtracting a few more dollars per month from your principal because your interest is lower. Just something else to remember.

The main thing to remember here is that FHA is not a bad type of mortgage in any sense of the word. Even the appraisals are treated the same as a conventional mortgage. With the exception that if your home is in a declining market, FHA will not hold this against you, as long as the appraisal has good comps. And this example that I used was with someone who would more in likely have good credit, with a credit score of 650. With FHA, you won't be penalized with the same credit score or even a credit score of 550. If your lender says that there are penalties, then that is something internally and should be a red flag. This has not been passed down as of yet by those lenders that buy the loans from bankers or brokers.

How do I find an FHA approved lender?    You want to make sure who you are dealing with is FHA approved.

Why do I say this?  Not all lenders are approved FHA and some may tell you that you don't qualify FHA because in reality, they aren't FHA approved. 

You can find a HUD approved lender in your area by going to the following HUD website: http://www.hud.gov/ll/code/llplcrit.html     DISCLOSURE (just be careful of the spelling of the lender. If I put in my company's full name, Infinity Home Mortgage Company, Inc, it tells me that there is no such company. If I put in Infinity Home Mortgage, it shows my company as being FHA approved. Just keep this in mind. You can always call HUD also. (202) 708-1112

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For more information on FHA loans, please go to this link. The FHA Expert You can also go to this group : The FHA Mortgage Group

For more information on how you can obtain your dream home, please click here : Mortgage Financing Options

Copyright © 2008  by Jeff Belonger