FHA loans vs Conventional loans - Even with 20% down, FHA home loans could be better

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc
https://activerain.com/droplet/4jty

fha loans & fha home loans & fha mortgages

 

FHA loans have become very popular in the last 2 years and there are several reasons for this. What I hate hearing is that FHA mortgages have taken the spot of the subprime loans. This is not true at all. This statement is from those that are inexperienced in both the mortgage and the real estate industries. To many subprime loans should have gone FHA and that is just a fact. But why are FHA loans getting bad press now, stating that they are the most defaulted loans recently?  Read this : We should ABOLISH FHA loans...

 

In today's market, I am still hearing that if you have 20% down, that you are best using a conventional loan. But so many fail to realize that if you have credit score less than 680, that there are some major pricing hits. It's very sad when your loan officer doesn't even understand this and doesn't take the time to evaluate what the better loan is for their client. Even with 10% to 20% down and credit scores less than 680, FHA loans in many cases will be the best mortgage for you.

 

 

 

The example below is based on a $275,000 purchase price with 20% 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 720, certain fee penalties would apply to you, which would increase your rate and or points.  The FICO (credit score) that I am going to use is 639Keep in mind... Don't ever be fooled by that loan officer that says, don't worry, you can refinance later.  This is a bad statement for many reasons that I will write about another time.

 

 

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 660. And many lenders can't do FHA loans under 620. At Infinity Home Mortgage, I can do credit scores down to 580 now. Just beware of those that promise you a mortgage with scores under 620. It can happen, but they aren't as easy as advertised. Please read - Credit scores/FICO scores - I need a 700 credit score? ***

 

fha loans vs conventional loans

 

 

 

 

 

 

 

 

 

 

Disclaimer :  These rates are examples of today's pricing, and the spread shown in the example is real with the same profit margin for both sides. To compare this scenario apples to apples, there are no lender fees and with 3/4 of a point on the conventional side because of the pricing hit for the fico score.

 

 

GOALS – Important :

 

**So IMPORTANT - your loan officer should always be asking your goals. For 3 years, 5 years, and 10 years. Yes, we all don't have crystal balls, but in many cases you should have an idea and a plan.  As you can see, on paper, it looks like the conventional loan would be cheaper. But some important things to know. It cost the conventional borrower an extra $825 upfront, so that $33.18 saved a month actually doesn't truly start until the 25th year.  In 5 years on all FHA loans, if you put 20% or more down, the FHA mortgage insurance falls off automatically.  So after payment 60, you will now be saving $58.49 more a month on the FHA loan.  And as you can see, in 5 years on the FHA loan, you shaved off $2,200 more on the principal based on the upfront MIP of $4,950 that was added to the loan. So as you can see, goals are very important. If you were to put even 15% down in the scenario above, FHA loans would be much cheaper right away.

 

 

 

For more FHA loans vs conventional loans comparisons :

 

Donw Payment Series - A Must Read -

  • 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.

 

 

 

 

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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 important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

Follow me on:

Mortgage Myth Busters

 

______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Travis Newton 05/23/2010 05:20 PM
  2. Gabe Sanders 05/24/2010 12:21 AM
  3. Lewis Poretz 05/24/2010 05:39 PM
  4. Marzena Melby 06/09/2010 12:16 AM
Topic:
Lending / Financial
Location:
New Jersey Gloucester County Glassboro
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
1st Time Buyers
The FHA Mortgage Group
Tags:
fha
fha loans
new jersey mortgages
florida mortgages
fha mortgages
fha home loans
fha loans vs conventional loans
fha interest rates

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Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Jeff,

I've never liked FHA, but in today's market they have several great programs that can't be ignored! There is no greater opportunity than buying a fixer-upper than 203k and seniors should thourly understand reverse mortgages as a purchase mortgage before buying a retirement home!

Many people look at FHA as a looser but forget it's not the single family (1 TO 4 UNITS) that lose money it's all the shortsighted social programs they control.

Good post. Keep telling the people you've got 60 years of governmental bureaucratic incompetence to over come.

Bill

May 23, 2010 11:07 AM #1
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great points Jeff.  I never did consider the hit on the rate based on credit score.  I'll re blog this one.

May 24, 2010 12:20 AM #2
Rainmaker
70,777
Loan Survivor Real Estate Financing Expert
Purchases, First Time Buyers, Pre-Approvals, Refinance - Birmingham, MI

Great post Jeff.  I struggle with agents and byers everyday over FHA loans.  Uphill battle but I keep fighting it.

May 24, 2010 03:58 PM #3
Rainmaker
225,558
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff,  The most important thing that I get our of this post is that you need to deal with a Loan Officer than know asks the necessary questions and knows the options.   I consider myself an experienced Loan Officer, not like some of the order takers that would for some of the people originating loans for a Big Company or Bank.   I believe you and I find out the buyers wants and needs and then suggest the financing options.   The order takers offer what is being promoted by their supervisors.  As Mortgage Banker/Brokers, instead of just having one group of products we have the products and options of many different lenders. 

I do agree that FHA in Many Many cases is the best, however it is not always.   Consider today I took a 10% Down Conventional Loan.   Yes the Rate was .25% above what I could have offerred on a FHA Loan, however, because of the borrowers credit scores of the borrower, I was able to offer them a ONE TIME Upfront MIP Premium of 1.20%.    Yes a little higher rate, but a lower upfront MIP and no Monthly premiums.   

Borrowers need to talk with experienced loan officers that understand the options and can look at the total picture when discussing loan options with borrowers. 

 

May 25, 2010 02:35 PM #4
Rainmaker
76,436
Bridget Cella
Re/Max Connection - Sewell, NJ
e-Pro, Realtor

Conventional - people still do them? lol!  I have done way to many FHA loans.  Thanks for the great explanation.

May 26, 2010 08:32 AM #5
Ambassador
1,509,742
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

Very good explanation!  Thank you for including this in my outside blog!

May 31, 2010 01:08 PM #6
Ambassador
1,023,486
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Jeff, FHA/VA loans have always been popular in my market, probably because homes fall in the right price range.  I love reading your posts because they always shed a little more light than the last one... and that makes it easier for me to be supportive of my clients' decisions to go FHA.

Jun 07, 2010 03:30 PM #7
Rainmaker
210,056
Marzena Melby
Coldwell Banker Burnet Realty - Richfield, MN
Realtor, Twin Cities Minnesota Real Estate

One thing to remember is that it is the client's situation and his/hers best interest that should dictate which way to go.  They need to understand their options!  Thanks, Jeff!

Jun 09, 2010 12:11 AM #8
Ambassador
749,891
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

BILL.... . I know you never really liked FHA loans... lol  But when I compare the different types of loans out there, especially in today's market because of the pricing hits for credit scores and down payment, FHA loans usually come out ahead. And thanks for the compliment...

GABE... . I even knew of some loan officers that would argue with me several years ago when I wrote these posts, because they kept forgetting to build in the pricing penalties.... very sad, especially when they would come back and tell me that my conventional rates were way to high. And thanks for reblogging this.

DREW... . yea, especially with agents, that think they know better or because their loan officer told them so...  and borrowers?  Well, many will just believe what they read and hear. FHA loans rumors and myths   And thanks for the compliment..

TIM.... . I agree110%... that borrowers need to talk to a knowledgeable loan officer... and from speaking to you and from reading some of your posts and comments, yes, we do seem to ask those important questions... and to give the borrower the best loan that fits them, and not what is easier for us.  thanks

BRIDGET.... . yes, I have one friend that 70% of his business is still conventional loans.  thanks

RENEE.... . my pleasure and thanks for the kudos.

MARGARET... . you bring up an excellent point about values and why FHA loans could be more popular. In any case, my pleasure and thanks for the polite compliment.

MARZENA... . I couldn't agree more with you, which is why I love doing these breakdowns.  I had a previous borrower many years ago who was a Veteran. She had talked to two previous loan officers before me, both telling her that conventional was better when she was putting 10% down.  I did a quick cost comparison and the VA loan was cheaper by $73 a month. I showed her both differences on paper.  What was funny, yet sad, was that the other two loan officers just told her but never showed her. I investigated one lender and they weren't even VA approved.... SAD.

 

 

Jun 09, 2010 04:50 AM #9
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