FHA mortgages vs Conventional mortgages.... which is better?

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

 

fha mortgages

 

I know some loan officers will debate that conventional mortgages can be better than FHA mortgages, but I always thought that real numbers always outweighed opinion. Aren't real facts correct over opinion?  As long as these figures are accurate, right?

Yes, conventional mortgages are better if you have a credit score over 679 and if you have 15% down or more or 85% or less equity in your property. And we can get into more details, in regards to declining markets, monthly mortgage insurance, etc, etc. But let me just show you the basics and you can be the judge yourself.

But before I continue, here is one reason why some lenders say that FHA mortgages aren't as good. Many lenders are still not FHA approved, which means that they might not have your best interest at hand. Even though that particular lender is giving you their best mortgage program, is it the best program for you?

 

 

Now, things have changed in the last month. FHA/HUD has raised their maximum loan limits and in some areas, much higher. The new loan limits can be found here : https://entp.hud.gov/idapp/html/hicostlook.cfm But these new loan limits have come at a price per se. Many lenders have raised their fico score requirements for you as a borrower to obtain these new loan limits. I have been interviewing other lenders nationally and many have said that you need anywhere from a 620 to 660 to obtain these new limits. In regards to my company, I can go down to a 580 credit score.

In regards to the lower limits, the old FHA mortgage limits, many companies have a cut off of 580 to 600. I can still go down to a fico score of 500. When it comes to a conventional loan, you typically can't get a loan approved with a credit score below a 620. Sure, equity and cash reserves can help the cause, but your rate will still be much higher than if you went FHA.

 

 

The figures that I am about to show you are based on a $300,000 purchase price with 10% 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 680, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 620.  The reason why I didn't show a 619 score or below is because some mortgage insurance companies don't allow for  conventional mortgages with 10% down or less and a score below 620.  ***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. It all comes down to the investor. We don't have penalties on any credit score above 580.*** 

 

 

Type of Mortgage

Conventional Mortgage

FHA Mortgage

Purchase Price

$300,000

$300,000

Mortgage Amount

$270,000

$274,050 w/MIP

Mortgage Rate with 1 point

7.00%

5.75%

Principal and interest payment

$1,796.32

$1,599.28

Monthly mortgage insurance

$   117.00

$   112.50

Total mtg payment  PI with MI

$1,913.32

$1,711.78

Monthly Savings

 

$201.54

Disclaimer :  These rates are just an example and can change because of various market conditions and are based on a 30 year fixed rate of today. The fees would be the same and with 1 point, so to compare this scenario as apples to apples. The conventional rate also includes the penalty for the 620 credit score.

 

 

Some of you might be saying that you will be adding $4,050 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, which most people sell in a 6 year period, you would have saved $12,092.40 in that time period. This is a difference of $8,042.40 that you have saved!!!   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 is lower. Just something else to remember.

 

 

Overall, if you think about it, the average person doesn't have $30,000 to put down on a house, let alone, have credit scores above 680. And this comparison was using 10% with credit scores of 620. If you would put only 5% down on this scenario, your monthly mortgage insurance would actually be $185.25 on a conventional loan compared to $118.25 a month on a FHA mortgage. That just alone would mean that your mortgage payment would be $63.00 higher than on a FHA mortgage.

 

 

Here is another good post to read to give you good insight on what I am talking about : 

 

And Chaz Ramirez gives some more insight to FHA mortgages, compared to other programs here :

 

 

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

For more information on how you can obtain your dream home, please click here : Mortgage Financing Options

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

 
Copyright © 2008  by Jeff Belonger

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

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Rainer
11,031
Mary Luz-Johnsen
Concierge Notary Services, LLC - Cape Coral, FL
Thanks for a very informative post.
Mar 29, 2008 06:20 AM #1
Rainer
16,681
Joyce Logan
RE/MAX Achievers - Westerville, OH
Thanks for sharing this information with all of us! Best wishes to you in 2008! Joyce Logan, Realtor with Real Living HER, Dublin Ohio
Mar 29, 2008 06:41 AM #2
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation
In our area, FHA and VA are very important mortgage loan options.  It has a huge impact on us that adjacent counties have hugely different FHA maximum loans - funny thing, Bowie in Prince George's County has lower home prices and a higher maximum loan amount, whereas adjacent Crofton in Anne Arundel County has much higher home prices and a lower maximum loan amount.  Go figure!
Mar 29, 2008 08:25 AM #3
Rainer
212,227
Carol Smith
Casmi Photography - Mebane, NC
Thanks for sharing this information, Jeff.  FHA has made a true comeback in this area and there are only a handful of lenders that are on board to write them.  Seems backward to have such a great product available and still limit your offerings to the standard fare.
Mar 29, 2008 08:39 AM #4
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital
Thanks, Jeff!  I have been totally ignorant about VA and FHA because the limits in this area were very low, and very few condo projects were approved for these loans.  Recently, the limits for DC have gone way up, and I'm still amazed at how little, not just the agents, but the loan officers as well, know about these programs.  Even though the lenders offer them, I draw a blank and then, "OK, Pat, for you I'll get up to speed."  So this stuff is great!  Can you do loans in DC?
Mar 29, 2008 10:25 AM #5
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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

 

MARY.....  my pleasure... I hope more and more consumers & realtors understand this. And not only that, but many of the loan officers that keep thinking people with 660 credit scores and 15% down is a good choice for conventional loans....  that would not be the case.

JOYCE......  thanks for stopping by and my pleasure.

MARGARET......   I think they are huge in most areas now, with the new loan limits. Especially since many lenders on the conventional side have raised the credit scores on loan amounts over $417,000, which makes it not only harder, but more expensive over FHA mortgages.

CAROL.....  the sad thing is even before the loan limit changes, FHA should have never left.  And on the other note, many lenders aren't stepping out to get FHA approved, because it's expensive upfront and per year.

PATRICIA.....  in all honesty, I am glad that many loan officers either don't know much about FHA, are afraid because they haven't done them, or just can't because their company is not approved.  I already sent you the e-mail in regards to your question. Thanks...  talk soon...

 

Mar 29, 2008 01:19 PM #6
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Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production
Jeff....sometimes I think that I should let my membership to LTB expire and have suscribe to belonger.net.  Good education homey!
Mar 29, 2008 03:27 PM #7
Rainmaker
337,519
Thesa Chambers
Fred Real Estate Group - Bend, OR
Principal Broker - Licensed in Oregon
love how you break this down -
Mar 30, 2008 07:17 AM #8
Rainer
31,509
Ryan Vivo
Gateway Realty - Fairfield, CA
NRBA Realtor Solano County, Gateway Realty 707-384-5894
Cool Video, It is amazing how people are using technology these days.  It is a very creative way of explaining mortgages.  Good luck in the contest.
Mar 30, 2008 06:32 PM #9
Rainer
29,675
Steven Odierno
Mahwah, NJ
NJ Mortgage & Marketing Professional
Hi Jeff - Thanks for a great post.  I must have missed it the other day when you wrote it.  If it is okay with you, I would love to pass this along to my LOs.  We are hoping to receive our Mini-Eagle in the next couple of weeks (unless HUD finds something else missing from our application that we have sent over to them half-a-dozen times.)  We see the Mini-Eagle as a light at the end of the tunnel - I just hope that it is not another oncoming train!
Mar 31, 2008 04:40 AM #10
Rainer
35,053
Olan Carder
Fairway Independent Mortgage - Charlotte, NC
Very nice post JEff... I might have to steal the idea if thats ok!
Apr 07, 2008 04:49 AM #11
Rainer
9,158
Spokane Real Estate - Aaron Mallo
Soleil Real Estate Partners - Spokane, WA

I, too, am a huge fan of FHA mortgages for just the same scenario you laid out here.  Thanks for the post.

Aaron

May 29, 2008 03:56 PM #12
Rainer
15,124
Bill Dowell Condo Assoc. Management in Worcester, MA
Worcester Property Management LLC - Worcester, MA

Veru informative--I will direct people to view this!

May 30, 2008 09:34 AM #13
Rainer
56,130
-- Casey Brischle
Columbia Bank - Spokane, WA
Spokane Home Loan Mortgage Professional

FHA has its place in the lending world...in my area it never really went away.  Great post Jeff

May 30, 2008 12:07 PM #14
Rainer
26,964
Laura Moore Godek
Laura Moore Godek, PC - McHenry, IL

Great analysis.  Don't forget PMI is tax deductible for some people.

Jun 02, 2008 03:16 PM #15
Ambassador
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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

 

LARRY.... lol... thanks Larry.... and I am not familar with the initials for LTB?  Loans?  In any case, thanks for the compliment.

THESA....  thank you.... and it should be easy to understand....

RYAN....   cool video?  I guess you are commenting about this blog post?  FHA mortgages - mortgages in general - What a consumer should know first....

FIRST ROCKLAND....  yes, you can use this and pass it along to your loan officers.  if you are going to be FHA approved, you might as well do it right... right?   If you have any questions, never hesitate to ask.  thanks

OLAN.....  no problem..... knock yourself out.  Just give me some kudos... or deposit $1,000 into my pay pal account... lol   Seriously, you can use it...

AARON......   I'll check it out when I am done responding... thanks

CHRISTINA.....  my pleasure and go right ahead.  I truly believe that more and more people need to read something like this.  I can't tell you how many hear so many different things that aren't correct, just because the loan officer says so...

CASEY.......   same here...  and it should have never been replaced in some cases by subprime mortgages.  Either lazy loan officers or those lenders that weren't FHA approved. thanks for the compliment.

LAURA.....  the one-time PMI or the monthly MI?  Because the PMI is added onto the loan amount which makes it automatic for the tax deduction... it's part of your principal.  So why confuse the issue....  the monthly is a different animal.  And they need to consult a tax accountant or CPA.  thanks for the compliment.

 

Jun 03, 2008 03:35 PM #16
Rainer
25,107
Bryan Flynn
Regency Mortgage Corporation - Worcester, MA
Central Mass and Worcester Mortgages

FHA is great these days that is why the U/W times are so long........especially with the fannie/freddie LLPAs

Jun 03, 2008 03:43 PM #17
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