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FHA MIP vs Conventional PMI -- The online truths that are false -- Part 1

By Jeff Belonger

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

January 11, 2008 03:18 PM

hud symbol

MIP update as of 10/1/08 -- New Upfront Mortgage Insurance Premium Changes

Educating the consumer is sometimes the simplest in form, but can be so misleading by those that don't do their research or know what they are talking about. I tell people that I am not god nor am I perfect, but I do consider myself to be very good at what I do. And if I am not sure, I do my research to make sure that it's very accurate.

As I have conversations with others in the real estate profession, it becomes scary to when I hear stories of incompetent loan officers telling their client that they are approved for a mortgage, when that is not even the case. When I did some searches on the internet regarding monthly mortgage insurance, known as MIP for FHA, I found a few sites that were not even misleading, but incorrect.

Here is what I found.

PMI vs FHA MIP: for Home Loans and Mortgages, San Diego ... Here is what was quoted from this web site. (next paragraph)

PMI vs FHA MIP

"Although the insurance protection concept is similar, there are differences between private mortgage insurance and FHA mortgage insurance. FHA insurance is a government administered mortgage insurance program that does have certain restrictions. FHA has maximum regional loan limits that are lower than those with private mortgage insurance. FHA may be more expensive, take longer to receive approval, and have fewer payment plan options. FHA insurance lasts for the life of the loan, unlike private mortgage insurance which is cancelable in most circumstances. FHA is a good choice for some borrowers with credit history problems that might need special assistance."

The next two links have the exact same comments as the above mentioned paragraph.

http://www.monacapa.com/financial/mortgage-articles_articleid_1065.html

http://www.mortgage101.com/Articles/Insurance.asp?ArticleID=1030&p=mtg101

What is wrong with the statements made in the above paragraph and the links :

FHA has a maximum loan amount per county -- Correct -- Here is the link : FHA loan limits (this will be changing for the better in a few months)

FHA may be more expensive -- False -- The rates & fees are the same as a conventional loan. The only difference is the One-Time Mortgage Insurance Premium, which is listed below. And I am giving these company's that published this information the benefit of the doubt because depending on your credit score and LTV, conventional loans could be a lot more expensive than FHA loans. Please read here for proof : Will Conventional loans be just like the Subprime mess?

FHA may take longer to receive approval -- Semi False -- It all comes down to how well the loan officer put the whole deal together. Anyone can put a conventional loan together and if it gets approved in the online system, sure if can close after a junior underwriter makes sure that the information was inputed correctly. But if I have all of my ducks in a row, FHA can be approved almost as quickly. And even if denied in the system, which would say refer, it can be manually underwritten. You just need to know what you are doing.

FHA has fewer payment options -- Correct -- All they have is a 30 yr & 15 yr fixed rate, buydowns, and a 1 yr & 3 yr adjustable rate program. Okay, so they don't have a 3 yr, 5 yr, or 7 yr adjustable. In todays market, these rates are just about the same or even worse than a 30 yr fixed rate mortgage. So those programs wouldn't help you.

FHA's monthly insurance lasts the life of the loan -- False -- I will show you how this is not true in Part 2.

Here is another site to stay away from -- PRIVATE MORTGAGE INSURANCE -- What cracks me up with this one is in what they stated on their site. This is directly from their site.

"FHA/VA mortgage insurance tends to be higher and is always required regardless of the loan amount"

Well, they got part of this right. You will always be required to have monthly mortgage insurance no matter what your down payment is. But I will go over this later. But what is misleading by their statement is that it's hard to tell if they are talking about One-Time MIP or annual MIP which is paid monthly. I did a series on this which will be listed below. -- If you put down 10% or less, FHA MIP is cheaper. And in today's market, how many are putting down more than 10%. The odds would be against it.

"Since we don’t do FHA or VA loans, on this site we’ll only discuss the mortgage insurance that affects our loans, MI."

And can we assume that this lender even knows much about FHA, since they actually don't do FHA loans. I have had a client go to 2 different lenders who told her that the 10% down conventional scenario was better than her putting down 10% on a VA loan. They both said that they both ran the figures. Both loan officer's were incorrect with their statements. I did some research and found out that both lenders weren't VA approved. Gee, wonder why the conventional scenario was better.

Word of advice.... make sure that your lender is approved FHA, VA, and can do conventional mortgages. It costs money to be FHA approved and it could cost you lots of money down the road if you don't have all the options available to you. And can you trust the loan officer to answer correctly? Not always. You search to see if lenders are FHA approved by this web site.

How do I find an FHA approved lender?

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

These two links go to what I think are bogus web sites. I call these lead generator sites. Anytime a web site says click here to get lenders to give you quotes, it's usually not a good thing. Think about it. These lenders know that they are competing against each other for your business all through the same business.

http://www.loanchoicedirect.com/default.aspx?cid=Mortgage101

http://www.monacapa.com/financial/mortgage-articles_articleid_1065.html

A few FHA related posts to included MIP :

FHA Mortgage Insurance Premium & Monthly Mortgage Insurance and how it works -- Part 1 of 3

FHA Mortgage Insurance Premium & Monthly Mortgage Insurance and how it works -- Part 2 of 3

FHA Mortgage Insurance Premium & Monthly Mortgage Insurance -- Refunds -- Part 3 of

FHA mortgages - FHA loans & things that you need to know about them!!!

FHA & First Time Homebuyers -- Buying Steps & Tips that you need to know!!!

Mortgage Insurance Series :

FHA MIP vs Conventional PMI -- The online truths that are false -- Part 1

FHA MIP vs Conventional PMI -- What to look for & the meanings -- Part 2

______________________________________________________________________________________________________________________________________________

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

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Sarah Nopp

South Sound, WA

You know what would be kind of groovy... a table of PMI, or formula that I could use to figure PMI on the go, while I am out with my clients looking at houses. Like what is the rate at the different down payments. I swear I knew this once... Somewhere.

Jan 11, 2008 06:38 PM

Marc Grossman

Marc It Sold! - Longwood, FL

GRI, Greater Orlando Real Estate Broker

Jeff, I don't consider myself naive, but sometimes this amazes me. I can't believe that someone would post incorrect info on their website. Geez. What really behooves me is that Mortgage 101 had incorrect info. So many people use that site for info. It's also obvious that the other two site copied this info.

Jan 11, 2008 10:50 PM

Matthew Rosov

Amerisave Mortgage Corporation - Laurel, MD

Certified Mortgage Planning Specialist

Great information, Jeff.

Sarah - Check out the following 2 sites - http://pmi.reedtm.com/index.php & http://www.forsalebyownercenter.com/tools/pmicalculator.aspx The first is more detailed & accurate (takes into account FICO score & amount of coverage needed). The second might be better for a quick and dirty amount. The second can be gotten to relatively easy on a PDA or other cell phone with internet capability.

Jan 12, 2008 12:27 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

SARAH...... I can see that Matthew linked a few charts. I will still have part of this in my part 2 blog. But in all honesty Sarah, why do you think you should know this and help your clients with this. If they are going conventional, there are over 4 ways to do PMI or NO PMI. In regards to FHA, it will be much different when they make the changes to risk base pricing in a month or so. I am not trying to make enemies with the realtors, but I don't believe that they really should have any part when it comes to qualifying the homeowner.

Please read this if you get a chance. Good Faith Estimates -- Loan Officer or Realtor? This is just based on my opinion, but as you can see, many realtors feel the same. Even loan officers can't always get this process correct. But I do thank you for stopping by and for reading this.

MARC...... I never even look at Mortgage 101. And what's sad is that the 5 items that I desected, 2 were false, 1 was semi false, and 2 were true. If we pretended that this was a court of law, all five of those items could be interpreted incorrectly. But in reality, the last 1 mentioned is definitely false and I can prove it from HUD's web site. And I will be showing this in part 2. Now, some of this has changed throughout the years. But it's not a blog, it's a web site. It's up to them to go back and change it. That change was made back in 2004.

On another note, what's disturbing as you mentioned, is that these other 2 companies copied exactly what they had. Now, who copied from who? We will never know. But it does go back to plagiarism and just for the fact that they copied the wrong stuff. It goes back to my comment, do your research. I was pretty sure with most of the information that I wrote about, but I made sure by doing my research on HUD's web site.

MATTHEW..... thanks for the compliment. Thanks for supplying the links. But read my comment to Sarah. I am not trying to take a stab at her, because she is interested. But I do have a problem with realtors pre-qualing the consumer. Even a good loan officer can do this on the fly, on the road. There is more than just spitting out a few numbers to the client. I need to know goals, cash-on hand, not only credit scores, but their credit. There is so much that goes into this. I just think it's very dangerous, like playing with Dynamite. As I mentioned, even loan officers can't get this right at times.

Jan 12, 2008 02:14 AM

Fran Gaspari

Patriot Land Transfer, Inc. - Limerick, PA

"The Title Man" - Title Insurance - PA & NJ

Jeff,

Always learning something on your posts! Thanks, Fran

P.S. I've said it before and I'll say it again...I love FHA products!!!

Jan 12, 2008 08:16 AM

Randy Bolton

None - Diamond Bar, CA

GREAT POST JEFF!!

Have you ever thought about doing an FHA series on audio CD?? I am currently doing training seminars for new loan officers and Realtors who want to learn more about loans, and I would love to include an audio series from you to the students. I would give you $20 for each set I sell. Also, ya know, there are many people who check out your blog. You could sell an audio CD series on how to do FHA, and I bet you'd make over half a million dollars. Loan officers and Realtors alike could easily order your set, listen to it in their car, and understand FHA much better. More people would push FHA loans (which is good), and so communities would be better served.

Jan 12, 2008 09:31 AM

Alexander Harb

Knights Investing - Mesquite, TX

Dallas, Texas Real Estate Investing

Yup, you were right...it does curl my toes...all it is is marketing to people who don't know the truth and are trusting those who are "State Licensed" to tell them the truth..... misleading in some of those ads is the nicest possible description and downright deceptive and worthy of being prosecuted is what should happen because of what is in other ads........

It's just like when i posted a blog on how to do a proper CMA on ActiveRain©...it has been read (clicked on) by THOUSANDS of people....BUT why didn't they know how to do one in the first place??

That is one of the FIRST things you should be taught by a broker OR a mentor when you are first licensed......

That situation is troubling to say the least.... they should put a section on knowing how to do a proper CMA in the state licensing test...... not the cute edition of it I took some 10 years ago.....

=-/

Jan 16, 2008 10:09 PM

Jay Beckingham

Christensen Financial Mortgage - Port St Lucie, FL

Seniors ROCK!

it scares me what is out there on some of these sites.

also, when i'm talking with my realtor friends, i suggest that before their client applies for an fha loan, that they ask the loan officer how long that they have been doing fha loans, and how many they have closed recently, as well as last year.

everybody is new sometime, so if the loan officer isn't experienced they need a mentor who is, just one man's opinion.

Jan 17, 2008 11:19 PM

Anonymous

Jim Gilly

You claim the FHA only has a 1 year and 3 year ARM, however, HUD says:

"FHA offers a standard 1-year ARM and four "hybrid" ARM products. Hybrid ARMs offer an initial interest rate that is constant for the first 3-, 5-, 7- or 10 years. After the initial period, the interest rate will adjust annually. Below are the different interest rate cap structures for the various ARM products:

1-year ARM and 3-year hybrid ARM have annual caps of one percentage point, and life-of-the-loan caps of five percentage points. (Example - if your initial interest rate were 5.00%, the highest possible interest rate would be 10.00%)
5-, 7- and 10-year hybrid ARM have annual caps of two percentage points, and life-of-the-loan caps of six percentage points."

So who is right?

Mar 14, 2008 08:57 PM

Anonymous

Karen

As an addendum to my previous comment, I would like to add that HUD is currently in process of revising RESPA guidelines to require that mortgage brokers reveal a greater amount of information in the Good Faith Estimate sent to borrowers. This new document requires lots of great changes including revelation of ARM, negative amortization, and pre-pay penalties. It also requires that Yield Spread Premiums be shown as a borrower credit, presumably so individuals can compare lender charges more directly. It does not however, require or even allot for us to show MIP to borrowers up front. Hmmm...interesting oversight on their part.

Jun 07, 2008 04:31 PM

#10

Anonymous

Karen

Jeff:

I am a mortgage broker who is FHA, VA, and Convential licensed. In my experience, FHA loans are more costly due to MIP than even Convential loans with lender paid PMI. As such I would never advise my clients with a FICO above 680 into an FHA loan.

These loans are great for people who cannot qualify for Convential without taking rate hits for less than perfect credit, but otherwise are unnecessarily costly.

Karen

Jun 07, 2008 04:36 PM

#11

Dee Ann McCormick

Kennesaw, GA

With all of the Market changes (Georgia) and if your Client does not have at least 10% to put down they would be better served to go FHA, depending on Loan amount and a few other factors of course.

Wells Fargo Home Mortgage is not credit score driven and the rates on FHA and VA are lower than conventional (at this time). I agree the up front MIP stinks, but with the changes with the PMI companies, even the Lender Paid PMI is on the high side, sometimes it makes better sense to go FHA.

I specialize in FHA, however with each Client I look at all aspects for their options. 2 years ago my job was easier as I am sure everyone would agree with that statement. We have to work a little harder now and keep up with industry changes, otherwise we are doing a disservice to our Clients.

I am thankful we have FHA and VA!

Jun 17, 2008 01:19 PM

Anonymous

Sara Washburn

Hi Jeff!! It's delightful to find you blog when I googled "fha va mip"! I think your post came up third or fourth. :) Hope you have a superb Fourth of July!

Sara

Jul 02, 2008 08:22 PM

#13

Anonymous

Jamshed Rehman Khan

Guys;

You all rock, seriously, I enjoyed reading this page and the comments posted.

All the best.

Feb 13, 2009 08:33 AM

#14

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