The FHA Expert

FHA loans vs conventional loans -- The true story told by numbers....

FHA loans are not the next subprime loans.  Don't let anyone fool you on this. FHA has been around since 1934, subprime mortgages started to emerge in 1994. Subprime loans in many cases were good for those lenders that weren't FHA approved. The problem with that is the rates on subprime mortgages were typically 2% higher than FHA mortgages.

Just because someone said they can qualify you for a conventional loan and that it would be cheaper than a FHA mortgage, might not always be correct. In many cases, FHA loans are now cheaper than conventional loans, which is shown below.

One main reason why a loan officer might still make it sound like conventional loans are cheaper than FHA loans is because they aren't FHA approved. Another reason would be because they don't know much about FHA mortgages.

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 640, which is above average credit and 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 we can do credit scores down to 550. Many lenders can't go below 580.***

                                                                                                 

Type of Mortgage	Conventional Loan	FHA Loan
Purchase Price	$300,000	$300,000
Mortgage amount w/10% down	$270,000	$274,500
Mortgage Rate with Zero Points	7.00%	6.00%
Principal & Interest Payment	$1,796.32	$1,645.77
Mortgage Insurance Payment	$117.00	$112.00
Total Mortgage Payment PI & TI	$1,913.32	$1,757.88
Savings		$155.44 per

Disclaimer :  These rates are just an example and can change because of various market conditions and are based on a 30 year fixed rate as of today. The fees would be the same and with zero points, so as to compare this scenario apples to apples. The conventional rate also includes the penalty for the 640 credit score.

Some of you might be saying that you will be adding $4,500 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 $9,326.40 in payments in 5 years. This is a difference of $4,826.40 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.

 

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

Copyright  © 2008    by Jeff Belonger

 

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com

FHA mortgages are not just for First Time Homebuyers.......

FHA mortgages are not as complex as many make them out to be. They are not the next subprime mortgages.  FHA loans have been around since 1934, while subprime mortgages started to come into full force back in 1994. Lastly, just because someone said that they can qualify you for a conventional loan and that it would be cheaper than a FHA mortgage, might not always be correct.

What else should you know about FHA mortgages?

• If you put 10% or less down and your credit scores are less than 680, 99% of the time, your payment will be much lower on a FHA mortgage than it would be on that conventional loan. Don't let anyone tell you differently. I can show you proof.  Numbers don't lie, people do.
• FHA mortgages are not just for first time homebuyers.
• They are not just for those with less than perfect credit.
• You can do up to a 95% cash-out with a lower rate than you can do with a conventional loan up to 90% LTV.
• You need only 3% of your own money out of pocket.
• You can get into a home with no money out of pocket with the help of down payment assistance programs. One example is the Nehemiah Program. Stay away from those that say you can do 100% with FHA. There is no such beast. But you can still do creative financing to make it look like 100%, but there is no 100% financing. That is false and misleading no matter how you view it.  Creative FHA financing -- No money out of pocket from the buyer!!!
• It's the only true residential type of mortgage that can be manually underwritten with great rates.
• Bankruptcies allowed -- discharged between 1 to 2 years after the bankruptcy. FHA Credit  --  Understanding what works
• You can have a non-occupant co-borrower help you obtain a FHA mortgage. FHA -- Non-Occupant Co-Borrowers, are they allowed?
• You can buy a family members house and use the equity as your source of down payment and for closing costs. FHA Gift of Equity Loans
• I can do credit scores down to 500, even after a bankruptcy, as long as the credit fits the profile. Many companies can't do below 580 and some under 620 on FHA mortgages.

 

 

Make sure you seek a mortgage professional that can help you find the right programs, answers all of your questions, and is able to offer any program out there. Each consumer is different with different needs.

 

 

Some things to pay attention to when shopping for any kind of mortgage.

• Good Faith Estimate  --  What to look for when shopping......

• Shoppers that shop themselves right out of the market……

• FHA Shopping, rate shopping, fee shopping.... call it what you want, just be careful!!!

• No Closing Cost Loans VS Closing Cost Loans

• Purchase Price vs Payment.    what's missing??????

• FHA - Conventional - APR vs Rate --  Understanding the difference......

• FHA origination fee and what it means......

Copyright  © 2008    by Jeff Belonger

 

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com

FHA mortgages - Brokers vs Bankers - Part 2 of 2 - Do you want the truth?

In the ever changing world of mortgages, it's been tougher in recent months, especially if you have to rely on another company to help you close a loan. Which sets that tone for a debate between brokers and bankers. Let's start off by defining each of the two and give you examples on how both sides operate.

Mortgage Broker :  This is a company that has 15 to 40 lenders that they broker the consumers mortgage to. Now, you will see some brokers advertise that they have 100's of lenders to choose from. (this is just good advertisement to make you feel like you are getting a better deal) And think of this, consider that we all get the money from the same place, there is really no need to have more than 6 or so lenders.

Positives   :  Maybe for the fact that they have many to choose from.  Not much else.

Negatives  :  No total control. All they do is process your loan. They need to send it out to be underwritten. Now, there will be some out there that will tell you that they have these great relationships with their lender and they can get favors. This has changed in today's market. Besides, that lender underwriting their loan can change guidelines any time they want. Also, they are taking longer to underwrite loans. In my honest opinion, almost anyone can originate a conventional loan. Why do I say this? Any loan that is done conventionally, has to be approved in a system called DO, DU, or LP. If the system says Refer/Eligible, then the deal can't be done.

Now, if you have a FHA mortgae that comes back refer/eligible, then it can be manually underwritten by an underwriter. I have two clients just recently that went with other brokers that were sending their loans to other companies to be underwritten. One took 15 days and the other took 9 days. This is what can happen when dealing with a true broker, no matter what they tell you. And the one that took 15 days was denied. I just approved this same loan FHA.

 

Mortgage Banker :

• Traditional Mortgage Banker -- This would be a mortgage company that originates the loan, processes it, underwrites it, closes it, and services the loan. Examples of companies like this are Bank of America, Countrywide, and..... anyone left. The negative with this set up is that they can only use their own in-house programs.

• Typical Mortgage Banker -- This is a company that does everything mentioned above, but that they sell the loan to an investor after the loan closes. They have a handful of investors to sell this loan to. And this process doesn't affect the clients mortgage, even if the investor doesn't buy the loan from the lender. Once you go to closing and sign the note, the mortgage, and the HUD settlement sheet, it's a done deal by law. The company that I work for, Infinity Home Mortgage Company, falls under this example.

 

 

Summary : I have many friends that are mortgage brokers and this is not to say that they aren't any better. But from my experience and the type of loan that the consumer is applying for, it's best to go with a company that actually underwrites their own loans. Especially when it comes to FHA mortgages. I can speak from experience because I had a clean conventional loan that took an extra 2 weeks because the lender that we were brokering it to took forever and didn't get some of our conditions. And the only reason was because that client wanted a 5/1 arm with a great rate. This is the chance that you take as a true broker.

Another point to be made about my company, Infinity Home Mortgage Company. is that we have the best of both worlds. If we had to act as a broker to get you that special loan, we can do this. We have the same investors as everyone else out there. I prefer to do the deal in-house, since we have full control. The only time I go the broker route is when I need a lender that offers special deals such as stated loans or super jumbo loans. But as I stated, I don't care who you are or what kind of relationship that you have with that lender as a broker, you lose full control of that loan. Just recently, I can't tell you how many times that I heard from consumers that went with the broker who told them that there were delays, but not to worry. Not to worry because that they have a great relationship with that lender and it still gets delayed and sometimes denied.

                 A Mortgage Banker that has various investors to sell to after the loan closes. Who can underwrite in-house. We can take any risk that we want, a broker can't.  I, Jeff Belonger, Approve of this message.

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

Copyright  © 2008    by Jeff Belonger

 

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com

FHA Mortgages - FHA Mortgages - FHA Mortgages - Part 1 of 2

Are some lenders and loan officers just shooting craps with your mortgages? I think so.....  Experience and knowledge don't always have to be a prerequisite to help you with a mortgage. Now, don't get me wrong, knowledge and experience could be the key to your mortgage closing. But what about common sense? Shouldn't it be on the list also?. Why do I say this?

Just a week ago, I received a phone call from another lender in Alabama. Her question was about the down payment assistance programs and if I new any investors that did these with conventional financing. My first question to her was, why aren't you pursing this as a FHA mortgage? Her main response was that the back end ratio to qualify was too high. I asked, how high. She said 47%. Okay, in reality, depending on the loan, I can sometimes get this approved on a FHA mortgage anyhow. But I went over this with her with a fine toothed comb. Read on to see what I suggested which saved this client over $150 a month.

This loan officer had a client with a 623 credit score on a conventional mortgage.  By going conventional, the interest rate was going to be about 5/8% higher than a FHA mortgage. Just by lowering the rate 1/2%, the payment would be much lower, which would have lowered the debt-to-income ratio to under 45%. By doing this, this particular client would then have no problem qualifying for a FHA mortgage. And one more thing to keep in mind, the mortgage insurance would be lower monthly also. Here is a good example of comparing conventional mortgages to FHA mortgages.

•  FHA mortgages vs conventional mortgages -- 3% down comparision

 

 

The bottom line is to make sure that you are not only dealing with a lender/loan officer that can do FHA mortgages, but that individual is someone that can think outside the box.

And you might want to review these red flags. Mortgages & Real Estate -- Consumers need to be aware of these Red Flags !!!!!

 

In Part 2 :  I will explain in more detail and give examples of FHA mortgages compared to conventional mortgages. I will also show you that FHA Jumbo mortgages will be even more cheaper than either a jumbo mortgage or doing a conventional mortgage with a 2nd mortgage to stay under the conventional caps.

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com