Switching FHA to Conventional and Conventional to FHA When it is Appropriate

Mortgage and Lending with Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 NMLS # 6869

“Switching FHA to Conventional and  Conventional to FHA When it is Appropriate”

Two days before we were closing Erika’s mortgage, the lender ran a new credit report and her scores dropped 100 points, from 760 to 660, because of the drop in scores, instead of getting a 3.125%, 15 year conventional loan, her rate would have to be increased to 3.5%. 


I recommended that we convert the loan to an FHA loan. Even though there was a 1.75% mortgage insurance premium added to the principal balance, we had to do an FHA appraisal and it would take more time before we close,  these were the negatives. The positive was that her interest rate was 2.875%.

Mortgage optionsHer monthly payment ended up being almost identical, so in this case it made sense to make the switch instead of paying a higher monthly payment.

Our responsibility is to make sure that our clients end up with the best possible result, no matter how much extra time it takes. It is all about the math, if it is in the best financial interest to switch loan products, then that is what needs to be done.


FHA Refinance Volume Up Over Last Year

By: Rosemary Rugnetta

FHA has released the most recent FHA Single Family Outlook – Single Family Operations – August 2012. The report is proof that FHA has been very busy this year with refinances, as well as, home purchase loans. As popularity for FHA loans has grown since the housing crisis, FHA refinance volume is up over last year and can very well be on its way to a record.

For the month of August, 90,880 single family refinance applications were submitted. Of these, 72,066 were prior FHA cases and 18,814 were conventional conversions to FHA. This represents more than three times the amount of applications for the prior year (21,724). Of the prior FHA cases, two thirds were for the FHA streamline refinance which offers reduced upfront and annual mortgage insurance premiums.

While FHA refinances were booming, 71,428 total purchase mortgages were endorsed in August. Of that number, 55,617 were for first time home buyers (three out of every 4 purchase transactions).

For FHA refinance transactions endorsed, 42,607 were prior FHA mortgages and 7,894 were conventional conversions. Prior FHA cases using the streamline process totaled 92.8%. Of the conventional conversions, cash out accounted for 2,317 and 107 were short refinance transactions (FHA Refinance of Borrowers in Negative Equity Positions).

Up to date this year, FHA has insured 1,130,717 single family mortgages. This includes 677,175 home purchase loans and 402,415, with the balance being for reverse mortgages. A total of 7,691,770 FHA mortgages were in force at the end of August 2012.

FHA has and continues to play a major role in the housing market. While giving home buyers the chance to purchase a home with lower down payments and easier qualifying, it has brought consumers back to attaining homeownership. At the same time, it has helped countless FHA mortgage holders refinance to lower FHA mortgage rates through its FHA streamline refinance program and for many, has given them the opportunity to do so with lower mortgage insurance fees. In addition, FHA has also helped a large amount of conventional loan holders to refinance to better rates and terms. The numbers are proof that FHA mortgages have been a lifeline during the housing crisis and will continue to be during the housing recovery.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee.

image courtesy of renjith krishnan/freedigitalphotos.net


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Joe Petrowsky, NMLS #6869

Right Trac Financial Group, Inc. NMLS #2709

110 Main St.

Manchester, Ct. 06042

Office: 860 647-7701 x116

Fax: 860 647-8940

Cell: 860 836-9294

Email: joe@righttracfg.com



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Joe Petrowsky does not guarantee nor is in any way responsible for the accuracy of the information provided herein, and provides said information without warranties of any kind, either expressed or implied.

Equal Housing Statement: We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing becuase of race, color, religion, sex, handicap, familial status, or national origin.


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John G. Johnston
John G. Johnston & Associates, LLC - Westcliffe, CO
An Exclusive Buyer's Agent ~ Westcliffe, CO

Joe, great post.  I've been in real estate since 1999 and I don't think I have ever had a client use FHA!  Makes me feel very inadequate.  Now I think I need to take a lending course.  I think the last one was early 2000.

Nov 08, 2012 11:23 PM #1
Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent
Joe, You always seem to have the best interest of your client in mind and work out the problem.
Nov 09, 2012 09:43 AM #2
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC


That's why consumers need to work with a mortgage professional.

Good luck and success.

Lou Ludwig

Nov 09, 2012 10:28 AM #3
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joe, I had that happen about a month ago, but luckily for my Borrower the drop in scores were because of a reporting error by one of the creditor.  We disputed it, did a rapid re-score, and were back on track.

We have to be ready at all times to do what needs to be done in the best interest of our Borrowers.

Nov 09, 2012 11:42 AM #4
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Joe.  You have to know your options.  You do.

Nov 09, 2012 07:36 PM #5
Cheryl Eskridge
Eskridge Real Estate - Eagle River, WI
ABR, CRS, GRI, PMN, Broker, Licensed in WI & TX

It's wonderful that a mortgage consultant would take the time to create a better financial environment for the buyer when things are seemingly not working. This type of lending is what our buyers need and thanks for being one of those lenders. I am sure your clients are very happy.

Nov 09, 2012 09:25 PM #6
Patricia Feager
Selling Homes Changing Lives


I said it before, and I mean what I say, I wish more mortgage lenders were as knowledgable and experienced as you.

You don't give up on your clients; and they don't give up on you.

I consider you to be an icon in the industry.

Nov 10, 2012 07:27 PM #7
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