FHA Loans vs Conventional Loans - Proof that FHA home loans with 5% down after major change are still cheaper 09-01-10

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

FHA home loans vs conventional loans

FHA loans have been one of the main focal points in today's real estate transactions. Two main reasons for this is that it comes to the down payment and the credit scores. In the past, some loan officers were using other types of financing that were easier for them, but not suited best for the borrower. What I do hate hearing is that FHA mortgages have taken the spot of the subprime loans. This is not true at all. This statement is very misleading. 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... Even with 10% down and credit scores less than 680, FHA mortgages in many cases will be the best mortgage for you.

As I have stated many times, a lot of it comes down to your goals, when determining what mortgage would be better for that specific borrower.

 

 

Just about a month ago, FHA got it's approval to increase the monthly mortgage insurance while decreasing the upfront mortgage insurance. Many thought that this would make FHA loans more even with conventional loans. Please read : FHA mortgages new mortgage insurance changes - One main factor not mentioned when most people bring this topic up is that it's still hard in many cases to get mortgage insurance on a conventional loan if your credit scores are under 680. You also need to be careful of the rumors circulating around FHA loans regarding the new monthly mortagge insurance changes.

 

The example below is 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 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 659 and I will still show in this example that FHA loans are cheaper, even with 5% down and the new increase in monthly mortgage insurance.

 

 

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 660 or can't do them. And many lenders can't do FHA loans under 620. 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. The conventional rate also includes the penalty for the 659 credit score, hence why the interest rate is much higher.

 

 

Some of you might be saying that you will be adding $2,375 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium. 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, you would have saved $5,629 in payments. Subtract the Upfront Mortgage Insurance premium from the monies saved in 5 years and you have saved a difference of $3,254!!!   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 rate is lower, which would offset the interest that you would write off on the 5.00% rate. Just something else to remember, but consult your tax consultant or CPA. And as I showed above, you would have reduced your principal balance by $4,508 more in 5 years on the FHA loan scenario.

 

IMPORTANT REMINDER : Mortgage Insurance on conventional loans can be harder to obtain nowadays. The scenario above could only be done by some mortgage insurance companies if your credit score was a 680 or above. The monthly mortgage payment reflected above for the conventional scenario would be this exact monthly payment for a credit score of 680.

 

FHA Myth - Some people, including loan officers, without doing the math, will say that FHA loans are more expensive because of the Upfront Mortgage Insurance. Because in this scenario, you are adding $2,375 to the FHA loan and because of the new monthly mortgage insurance change. This kind of mortgage myth needs to be squashed on all levels.

 

 

 

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

 

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follow Jeff Belonger on Twitter

 

The FHA Expert's fan page on Facebook     Add Jeff Belonger to your network @ LinkedIN

                                                                            FOLLOW ME ON FACEBOOK

 

 

- 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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Rainmaker
1,712,122
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

jeff...you present the case very well for the FHA mortgage & the savings over a period of time with the right credit score...thanks so much

Sep 01, 2010 06:04 AM #1
Rainmaker
143,999
Markita Woods NMLS#196099
Hancock Mortgage Partners, LLC - Woodbridge, VA
Queen of Mortgages - FHA, VA, Conventional, USDA

Jeff:

I agree that FHA loans are stioll cheaper and a better option as we are dealing with lower overall credit scores and the issue of declining housing values. Buyers need the full propspective vs. media propaganda about FHA loans. Thanks for the excellent post as usual.

Sep 01, 2010 06:27 AM #2
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

GINNY... . thank you very much.. I take a lot of pride in trying to show others the differences... and not just because it sounds good.  thanks for the compliment.

MARKITA... . in many cases FHA loans are... again, it comes down to the borrowers goals, credit scores, and a few other things... but you really need to take the time to break this down at times.  thanks and thanks for the compliment.

 

Sep 01, 2010 05:13 PM #3
Rainmaker
4,205,632
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Once again Jeff, thanks for setting the record straight about FHA loans.

Sep 02, 2010 12:49 AM #4
Rainmaker
169,005
Wendy Rich-Soto Realtor,Real Estate Coach & Consultant
Keller Williams Realty, LA Harbor - San Pedro, CA
"Bridging Your Way Home"

Jeff,

Great information!  FHA loans are such an important part of our market.  Without them, so many first time home buyers wouldn't have a chance at home ownership.

 

Wendy

Sep 02, 2010 08:15 PM #5
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