FHA mortgages vs conventional mortgages -- 3% down comparision
FHA mortgages are still one of the
best mortgage options out there, in my opinion. I have a few in the industry that fight me on this, but just give me words, not figures. As long as your credit score is above
500 and that you can prove your income, FHA mortgages will usually be better, unless your credit score is above 680.
This is a continued series showing you that in many cases, FHA mortgages might be your best solution when purchasing or refinancing your mortgage. Many lenders are still not FHA approved, which means that they might not have your best interest at hand, even though they are giving you their best mortgage program. But is it the best mortgage program for you?
As explained in previous blogs of mine, just because someone tells you that you are getting a conventional mortgage, doesn't mean that you are always getting the best rate. The main reason is because there are some pricing hits depending on your credit scores which I will mention below. This is either for purchasing or refinancing. Hence why FHA might be your best option.
The figures that I am about to show you are based on a $225,000 purchase price with 3% 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. This is the 2nd worst case scenario in regards to least amount money down with a credit score below 680. 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 less than 5% down and a score below 620. ***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 600. It all comes down to the investor. We don't have penalties on any credit score above 500.***
Type of Mortgage | Conventional Mortgage | FHA Mortgage |
| Purchase Price | $225,000 | $225,000 |
| Mortgage Amount | $218,250 | $221,523 w/MIP |
| Rate with 1/2 point | 6.75% | 5.5% |
| Principal & Interest Payment | $1,415.57 | $1,257.78 |
| Mortgage Insurance Payment | $174.60 | $90.94 |
| Total Mortgage Payment PI & TI | $1,590.27 | $1,348.72 |
| Savings |
| $241.55 per month |
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 a 1/2 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 $3,273 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 $14,493 in that time period. This is a difference of $11,220 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.
How do 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
