FHA Loans and FHA Mortgages

FHA loans have been the choice of mortgages as of lately in many parts of the country for numerous reasons. What I do hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage industry and the real estate industry.

The subprime loan for many years could go down to a 500 credit score, as long as you had more money down. But your rate was usually higher. The better your score, the less you needed to put down, the lower your rate. Sounds good, right?  Wrong, because the subprime rate was always higher than the FHA rates.

To compound this, so many thought just because you had a conventional loan, that you had the better loan. This was not always true when putting zero percent down or 3 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now?  Even with 10% down and credit scores less than 680, FHA loans in most cases, will be the best mortgage for you.

Okay, you could argue the fact that this is just my opinion. True, even though I have almost 16 years of experience as a loan officer in the mortgage industry. But numbers don’t lie. Let me show you…..

The example below is 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 659, which is above the average credit score and I will still show in this example that FHA loans are cheaper, even with 10% down.  

***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. And I can still do credit scores down to 500 with a manual underwrite. Many lenders can’t go below 580.***

 Disclaimer :  These rates are based on today’s rates for a 30 year mortgage and can change any time because of various market conditions. To compare this scenario apples to apples, the fees would are the same and with zero points. The conventional rate also includes the penalty for the 659 credit score.

Some of you might be saying that you will be adding $4,275 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 $5,420.50 in payments in 5 years. This is a difference of $1,145.50 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, which would offset the interest that you would write off on the 6.625% rate. Just something else to remember, but consult your tax consultant or CPA. 

FYI –  If you sold your house in less than 3 years, you are entitled to a refund of the upfront mortgage insurance premium (UFMIP) of $4,275.

How dto I find an FHA approved lender?    You want to make sure who you are dealing with is FHA approved.

Why do I say this?  Not all lenders are approved FHA and some may tell you that you don’t qualify FHA because in reality, they aren’t FHA approved. 

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     DISCLOSURE (just be careful of the spelling of the lender. If I put in my company’s full name, Infinity Home Mortgage Company, Inc, it tells me that there is no such company. If I put in Infinity Home Mortgage, it shows my company as being FHA approved. Just keep this in mind. You can always call HUD also. (202) 708-1112