FHA Loans Gain Advantages Over Conventional Mortgages

In the recent past, conventional mortgages held numerous advantages over FHA-backed loans. FHA loans were typically more expensive with their upfront 1.5% mortgage insurance premium (MIP) and the monthly mortgage insurance premium included in the mortgage payment.

Times have changed.

With rising foreclosures, mortgage companies are sustaining record losses and are tightening their lending qualification criteria, plus altering or eliminating numerous conventional loan products. The first to go was the 100% loan-to-value or zero-down conventional mortgage. In January of this past year, Fannie Mae (a company that buys and sells mortgages on the secondary market as investments, and has a huge influence over the types of loans available to the consumer) announced risk-based pricing adjustments (mortgage-speak for “costing you more money”) for high loan-to-value ratios, low credit scores, and features such as taking “cash-out” of the property on a refinance.

For example, prior to the change a conventional borrower with a 640 credit score borrowing at 95% loan-to-value could get the exact same interest rate as a 740 credit score borrower putting 20% down. During those times you were either in the club or you were out. You were either an “A Paper” or “Conforming” borrower or you were a “Sub-Prime” borrower. The main difference now is that there are many different levels of qualification for conventional borrowing. Today, a 740 credit score will get a better rate than a 640 credit score, and 20% down will get a better deal than 10% down. The greater the risk, the greater the rate when it comes to conventional loans.

FHA Government Loans have become the better alternative in many cases for those who are not eligible for the absolute best rates on conventional mortgages. This group mainly consists of those with credit scores under 720, those exceeding 80% of their homes value, or especially those taking “cash-out” greater than 80% of their home’s value. There is small rate adjustment for credit scores between 580-600 with FHA, and a bigger one for those under 580, but 600 plus borrowers are on the same playing field as everyone else. Because FHA interest rates are in line with the best conventional rates, it will usually result in a better deal for those subject to Fannie Mae pricing adjustments. Additionally, FHA has become almost a no-brainer for those who are still stuck with a sub-prime mortgage. They allow for manual underwriting which looks at the person more than the credit score.

Now more than ever, borrowers need a competent mortgage professional who is up to date on the current market conditions. Gone are the days where you can call around asking what interest rates are and hope to get a fair deal. All the numbers for your specific situation have to be plugged in to see what adjustments you may be subject to, and what type of mortgage is best. I offer a 100% free mortgage analysis to all Louisville area residents. To learn more visit www.billsexpert.com.

Mike Roberts is a senior loan officer at The Mortgage Warehouse. You can reach him at 502-244-4700, ext. 117 with any of your questions.

This entry was posted in Mortgage / Financial. Bookmark the permalink.

3 Responses to FHA Loans Gain Advantages Over Conventional Mortgages

  1. Pingback: loan » Blog Archive » FHA Loans Gain Advantages Over Conventional Mortgages

  2. adrienne bundy says:

    i am looking to purchase a 3 bed, 2 bath (1700 sq) townhome priced at 189,888 with taxes of 2230. there is high potiental i have to pay flood insurance (home never flooded) this property is located in munster,in 46321. there is a hoa fee of 100/mo. i would be offering in the 170,000’s mid etc and see what happens. i have a score of 700 or higher and maybe able to put 10,000 down at max (regretably). I am single making this purchase and have little debt. iam renting currently. i am considering going through countrywide. i was a previous customer. what would be the best loan for my situation…fha or conventional and im open to any other suggestions?

  3. yanni raz says:

    Today’s Most Popular Fha Loans

    What is fha loans with bad credit ?

    Fha loans are the most popular consumer mortgage loans you can possibly have today.
    Also fha bad credit loans are done by the government, basically the government have created these loans years ago and it was actually very popular.
    Fha bad credit loans also called fha hud loans have their fha guidelines and fha requirement.
    So for you to get a consumer mortgage and an fha approval you need to know the guidelines.

    1.Fha fees- fha fees are not so much different than any other conventional mortgage loans you had in the past.
    The problem is that some of us that apply to have a consumer mortgage are being charged high points in conventional mortgage loans.
    If you will read the fha guidelines you will understand that with fha lending it’s a much safer way to go because there are some restriction with the fha fees.
    2.Fha appraisal- fha appraisal is also not so different from a normal appraisal you will have to get done in a conventional mortgage.
    But here the appraiser that will appraise your home will have to be fha approved to get you an fha appraisal done.
    3.Fha conventional- fha conventional is not a normal term but some people are using this term for some reason.
    Fha conventional is not related to one another, fha is fha and conventional is conventional.
    4.Fha lenders- there are not a lot of fha lenders and fha brokers.
    A lot of people think that every mortgage broker can help them with their fha Home mortgage, no.
    Only a few Mortgage brokers out there are really fha approved, so before you make a decision about the next mortgage broker you will use make sure they’re approved.
    5.Fha loan limits- the fha loan limits have changed recently. Until march of 2008 the fha limits were up to $417,000, because of states like California, New york and Florida the fha loan limits have changed to $729,000.
    The new loan limits will help many homeowners to refinance their homes and avoid foreclosure.
    6.Fha pmi- fha pmi is the mortgage insurance you required to pay.
    Please read the fha requirements, in conventional loans you will pay pmi only if your loan is more than 80% ltv.
    Since fha programs don’t offer a second loan on your mortgage they will make you pay pmi instead, which is good because paying pmi is much better then a second loan.
    7.Fha rates- fha rates are much better then conventional interest rates.
    Conventional banks have a higher interest rates because they charge to the index of your loan a margin. Fha interest rates have no margin since the fha program is done by the government.
    Fha rates are lower then conventional rate loans.

    So again learn the fha guidelines and the fha requirements.
    now you will know the fha loan limits.
    1. you will probably have to pay fha pmi.
    3. The fha rates shouldn’t be higher then conventional rate loans.
    Now go find fha lenders or an fha broker, get your refinance or mortgage done and save your home.

Leave a Reply

Your email address will not be published. Required fields are marked *