The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures 1/4th. ”Going FHA” is more common than it has ever before before — but is it better choice?
The answer — like most things in mortgage — it depends on your circumstance.
Like conforming loans an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate or an ARM . Payments are made monthly and come without penalties for early pre-payment.
That’s where the similarities end, however, and decision-making begins. For homeowners and buyers across the states of Tennessee, Alabama and Louisiana , FHA mortgages carry a different set rules than thier conforming counterparts loans through Fannie Mae or Freddie Mac that can render them to be more — or less — attractive for financing.
- FHA mortgages can be assumed by a future buyer while Conforming loans may not be assumed
- FHA mortgages require mortgage insurance, regardless of the size of the downpayment, Conforming loans do not require MI if you put down 20% or more
- FHA mortgages do not have loan-level pricing adjustments based on credit scores,while Conforming loans do.
FHA mortgages also require smaller downpayment requirements versus a comparable conforming mortgage. FHA calls for a minimum downpayment of 3.5%. Conforming mortgages often require 5 percent or more.
Regarding costs, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been lower than the the average conforming mortgage rate more than half of the time, meaning that an FHA mortgage’s principal + interest payment is lower than a comparable Fannie/Freddie loan. However, depending on the amount of mortgage insurance required, the total montly payment may not be cheaper.
Today, conforming mortgage rates are lower than FHA rates. Dependant on each borrowers circumstances and loan level pricing adjustments.
So, which is better — FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today’s market interest rates and study the results.
With less than 20% equity, the answer is often that an FHA loan IS better than a conforming loan.
Give me a call 866.435.6553 to discuss your situation and see which program would best suit you.