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

Mortgages & Real Estate -- Consumers need to be aware of these Red Flags !!!!!

How many of you at one time or another bought a house or refinanced your mortgage and ran into one problem or another. May it have been the realtor who was not able to give you the correct answer or the loan officer who strung you along and then changed things last minute. I have never said that I am perfect or that I know it all, but it does come down to honesty, integrity, knowledge, and very good service. 

What about you first time homebuyers that have never experienced buying a home or refinancing for the first time. I truly believe that there are some key phrases that can sometimes be cause for concern, known as Red Flags. And just because you have done this before, doesn't mean that it won't happen to you. If you hear some of what is mentioned below more than once, especially in a short time period, this could be your warning.

The General / Basic Red Flags from both the loan officer or the realtor :

• As you shopped for a realtor or a loan officer, this person was always getting back to you. Now you have signed a listing agreement, a buyers agreement, or the loan application and they don't get back to you right away.  If you are leaving a few messages per day, both e-mail or by cell, and this continues for close to 48 hours, there is no excuse. This is a huge Red Flag if this takes place a few days prior to settlement / closing, especially the day of closing, if they can't be reached at all.
• Key words or phrases used often when first speaking to you ; "I promise", "I guarantee", "no problem, I'll fix it", "I am the best", "I am the cheapest", and "I have the lowest fees". I am sure there are more.
• Delayed phone calls. I promise to call later or tomorrow. But you don't hear back from them and now you have to track them down. Yes, again, things happen. But if this seems to be a reoccurring issue, then you might have problems.
• Deadlines - If there are certain dates on the contract or with the lender, get everything in as soon as possible. If that is ordering inspections in a timely manner or getting documents to the lender, don't wait.

Red Flags from loan officers or lenders :

• You are shopping for lenders and the loan officer never offers you a Good Faith Estimate. Rut row.
• They don't offer you the rate or the payment?  This might sound silly, but I had 3 clients just in one month, that this happened to them. Yes, can I judge and say that they should have asked?  But maybe the loan officer talked circles around that client, and then they just forgot. Sometimes just hearing, "you are qualified" or "you are approved", gets you excited, hence why you might forget to ask the important questions.
• You find a loan officer because their rates were very good. But since you have so much on your mind, they never go over the rate lock-in features of that program. If they don't cover this prior to application, and especially during application, this could be trouble. Or they get you to sign a rate lock form, but they convince you to float. Question, did that rate even ever exist then?
• You might qualify for a FHA or VA loan, but tell you that you don't want those kinds of loans, because conventional is better for you.  This has happened to at least 5 people that I know of. The main reason was because the lender wasn't FHA or VA approved.
• If your lender/loan officer changes rates or fees during the process or at settlement, don't just give in. Avoid excuses such as; "your credit score dropped", "you have less income", "your credit isn't as good", etc, etc. What I am about to say is the average. These things are usually found out in the first week when processing a loan, not last minute.
• Changing stories / shifting blame.  This one can be used in conjunction with the other red flags mentioned above.
• When comparing good faith estimates, don't just compare the bottom line, "total costs to borrower". Some loan officers low ball certain 3rd party fees to make their good faith look cheaper. Or they escrow less taxes on paper that is mandatory in each state.
• You are at closing and the loan officer says, "don't worry about those docs, we can correct that later". NO !!! Once you sign, it's over.
• Update (04/03/08)  -  If you have a credit score of 679 or less and less than 20% down and you know you should be going FHA, but the lender says that going the conventional way is better....  major red flag. It's been proven that going FHA in this scenario is cheaper monthly.

Red Flags from realtors or real estate offices :

• When an agent only shows their listings. If you want to see homes and they keep showing those only listed by their company or that they are selling themselves.
• One complaint - When a realtor has a full time job that is not real estate related. I heard a story that the buyers had to wait until their realtor got up to show them the house. This was at 1 pm.

 
Red Flags from consumers :

• This is actually to the consumer reading this. Never hesitate to tell your loan officer or realtor everything. Even if they don't ask you and you think it's pertinent to the transaction. Don't take that chance in not telling them. We are all here to help you and not pass judgment. The true professional acts in this manner.
• Be loyal and just don't hop to every realtor showing houses. Build a rapport  with that person. That's if  you feel comfortable with that person.

Overall, don't keep falling for the same excuses over and over. Or, for multiple excuses during the process. Yes, things happen, but 9 out of 10 times, not that many on one transaction. These types of excuses are usually to delay you in finding out the truth, until it's too late. If anything above happens for 2 or more days in a row, don't wait, contact their manager or boss. If you don't feel like you are getting anywhere at anytime, seek a professional in the particular field or possibly seek legal advice. It's one thing to give someone the benefit of the doubt, it's another to be lied to or misled intentionally. Never hesitate to ask questions.

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com

 

How many of you at one time or another bought a house or refinanced your mortgage and ran into one problem or another. May it have been the realtor who was not able to give you the correct answer or the loan officer who strung you along and then changed things last minute. I have never said that I am perfect or that I know it all, but it does come down to honesty, integrity, knowledge, and very good service. 

What about you first time homebuyers that have never experienced buying a home or refinancing for the first time. I truly believe that there are some key phrases that can sometimes be cause for concern, known as Red Flags. And just because you have done this before, doesn't mean that it won't happen to you. If you hear some of what is mentioned below more than once, especially in a short time period, this could be your warning.

The General / Basic Red Flags from both the loan officer or the realtor :

• As you shopped for a realtor or a loan officer, this person was always getting back to you. Now you have signed a listing agreement, a buyers agreement, or the loan application and they don't get back to you right away.  If you are leaving a few messages per day, both e-mail or by cell, and this continues for close to 48 hours, there is no excuse. This is a huge Red Flag if this takes place a few days prior to settlement / closing, especially the day of closing, if they can't be reached at all.
• Key words or phrases used often when first speaking to you ; "I promise", "I guarantee", "no problem, I'll fix it", "I am the best", "I am the cheapest", and "I have the lowest fees". I am sure there are more.
• Delayed phone calls. I promise to call later or tomorrow. But you don't hear back from them and now you have to track them down. Yes, again, things happen. But if this seems to be a reoccurring issue, then you might have problems.
• Deadlines - If there are certain dates on the contract or with the lender, get everything in as soon as possible. If that is ordering inspections in a timely manner or getting documents to the lender, don't wait.

Red Flags from loan officers or lenders :

• You are shopping for lenders and the loan officer never offers you a Good Faith Estimate. Rut row.
• They don't offer you the rate or the payment?  This might sound silly, but I had 3 clients just in one month, that this happened to them. Yes, can I judge and say that they should have asked?  But maybe the loan officer talked circles around that client, and then they just forgot. Sometimes just hearing, "you are qualified" or "you are approved", gets you excited, hence why you might forget to ask the important questions.
• You find a loan officer because their rates were very good. But since you have so much on your mind, they never go over the rate lock-in features of that program. If they don't cover this prior to application, and especially during application, this could be trouble. Or they get you to sign a rate lock form, but they convince you to float. Question, did that rate even ever exist then?
• You might qualify for a FHA or VA loan, but tell you that you don't want those kinds of loans, because conventional is better for you.  This has happened to at least 5 people that I know of. The main reason was because the lender wasn't FHA or VA approved.
• If your lender/loan officer changes rates or fees during the process or at settlement, don't just give in. Avoid excuses such as; "your credit score dropped", "you have less income", "your credit isn't as good", etc, etc. What I am about to say is the average. These things are usually found out in the first week when processing a loan, not last minute.
• Changing stories / shifting blame.  This one can be used in conjunction with the other red flags mentioned above.
• When comparing good faith estimates, don't just compare the bottom line, "total costs to borrower". Some loan officers low ball certain 3rd party fees to make their good faith look cheaper. Or they escrow less taxes on paper that is mandatory in each state.
• You are at closing and the loan officer says, "don't worry about those docs, we can correct that later". NO !!! Once you sign, it's over.
• Update (04/03/08)  -  If you have a credit score of 679 or less and less than 20% down and you know you should be going FHA, but the lender says that going the conventional way is better....  major red flag. It's been proven that going FHA in this scenario is cheaper monthly.

Red Flags from realtors or real estate offices :

• When an agent only shows their listings. If you want to see homes and they keep showing those only listed by their company or that they are selling themselves.
• One complaint - When a realtor has a full time job that is not real estate related. I heard a story that the buyers had to wait until their realtor got up to show them the house. This was at 1 pm.

 
Red Flags from consumers :

• This is actually to the consumer reading this. Never hesitate to tell your loan officer or realtor everything. Even if they don't ask you and you think it's pertinent to the transaction. Don't take that chance in not telling them. We are all here to help you and not pass judgment. The true professional acts in this manner.
• Be loyal and just don't hop to every realtor showing houses. Build a rapport  with that person. That's if  you feel comfortable with that person.

Overall, don't keep falling for the same excuses over and over. Or, for multiple excuses during the process. Yes, things happen, but 9 out of 10 times, not that many on one transaction. These types of excuses are usually to delay you in finding out the truth, until it's too late. If anything above happens for 2 or more days in a row, don't wait, contact their manager or boss. If you don't feel like you are getting anywhere at anytime, seek a professional in the particular field or possibly seek legal advice. It's one thing to give someone the benefit of the doubt, it's another to be lied to or misled intentionally. Never hesitate to ask questions.

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com

 

Mortgage 101 - FHA and Conventional Mortgages - The Basics

   Welcome class.....  After reading many blogs and advertising on the internet that talk about "best rates", "no closing costs", "little closing costs", "7 day closings", "hard to close loans", etc, etc..., I decided to give a brief and basic list of what you should be asking. These are also things that I hear from the average consumer on a weekly basis.

 

No matter if you are applying for a FHA mortgage or a Conventional mortgage, all basic questions should be the same. Don't let anyone tell you differently or confuse you. No matter how you came across this particular lender or loan officer, not only should you answer their questions, but you should make sure that you ask a few of your own. Especially if they don't touch the ones that I am about to mention. (Can there be more that we could argue about? Yes... but I feel that these are the most important.)

Here is what you should be asking your loan officer about ....

 

• RATE : This always seems to be most on everyone's mind. How come though, when I have asked a few people in the past what rate they were quoted, that they didn't know the exact rate that was given to them over the phone. But all they can tell me is that they got a great rate.

• Payment : This in all honesty should be your first concern, not the rate. I mentioned rate first, because this is what most clients ask first. And keep in mind, anyone can quote a rate, but it's usually based on you qualifying for the mortgage first. When you shop for a car, do you walk out of the dealership not knowing what your monthly payment is? And your payment is what you should be comfortable with, a reality, not a fantasy.   

• Loan Amount : I have heard some clients tell me that the loan officer didn't really tell them what their new loan amount is. This would happen more in regards to refinances more than anything. On a purchase, if you know your down payment, it's easy to figure out your loan amount. Why do some loan officers not disclose your new loan amount on a refinance? Because if you new the loan amount, you could typically figure out what it's costing you, because the costs would be wrapped up into the new mortgage amount.   

• Fees : This can sometimes be very deceiving and misleading. Don't ask what your total is, because the loan officer will include all fees that are associated with the mortgage. Just ask for the lender's fees. All other fees are 3rd party and are just that, an estimate. No Closing Cost Loans VS Closing Cost Loans

• GFE aka Good Faith Estimate : This is probably my favorite. By law, once you do an application and / or sign a good faith estimate, you are suppose to get a copy of the Good Faith Estimate (GFE) within 3 business days. In reality, there is no reason not to have a copy the same day. If you are shopping for a mortgage, if the loan officer doesn't offer to send you a good faith estimate, this could possibly be a semi red flag. If you ask for a good faith estimate and it takes more than 48 hours to obtain one, major red flag.  Good Faith Estimate  --  What to look for when shopping......

   

   

Lastly, in most cases, for your loan officer to help you properly, they should be asking what your goals are. Short-term goals and long-terms goals. Possibly asking if you have kids, if they are going to college soon, and anything else pertaining to your life style. Why should they get personal? In my opinion, it because easier for me to advise you on certain parts of your home financing. Example, if you told me that you were going to move in 2 years no matter what, they you shouldn't be paying points to lower the rate.

 

Here is a must read : Consumers need to be aware of these Red Flags !!!!!

Author of this blog : Jeff Belonger

e-mail : jbelonger@ihmci.com

 

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

2008 FHA & Conforming loan limits -- Truth or Rumor

We all know that the economy is in the tank in one way or another. The Senate passed the bill of raising the FHA loan limits across the country back in December of 2007. What so many people didn't understand is that it had to go back to the House floor to decided what the new loan amounts would be. And after this is decided, then the President would sign off on this new bill.  In all honesty, I thought that this would have taken place by the end of January.

Now, I am being contact by realtors and consumers asking what these new loan limits are, because there are talks on the street that they were raised. This is not the case as of yet. It's still speculation, because they are still working out the numbers. And what has been thrown into the mix of things, is that there is a plan to raise the conventional loan limits from $417,000 to $650,000 and the FHA limits to reach a maximum of $729,000.  But this would be for those high cost areas such as California, New Jersey, New York, and Massachusetts. There is more information in regards to the FHA limits being permanent, unlike the conventional backed loan limits to be there for relief until the end of December of 2008.

Overall, all of this sounds great, right?  Yes and no. Gee, shouldn't it be yes across the board, that it will help so many that are about to go into foreclosure? Yes, that is the good part. But let's face reality. Let's take a look at the values of homes. I could be here all day, that values are dropping. That people are upside down on their house, meaning that they owe more than it's worth. Florida is a great example. I have a client right now, that was promised a mortgage back in July of 2007, but the loan officer couldn't make it happen. Knowing your guidelines are very important. But that house was appraised for $258,000 back in June. I am now getting estimates of $160,000 and they needed to pay off debt in order to qualify and lower their mortgage payment. My new loan amount was going to be $158,500, so as you can see, we have a slight problem.

Another issue, even if they raise the loan amounts, there are going to be the income qualification problems. On a $450,000 mortgage at 6.5%, depending on the taxes adn homeowners insurance, you would need a total income of around $120,000 to $140,000 per year. Now, I am sure that we can find so many in California, Manhattan, and North Jersey that make this kind of money. But keep in mind, the cost of living in some of these areas are very expensive also. Example, a sub at Subway in Manhattan is about $1.50 more than it would be in South Jersey. Sure, these are just pennies to some, but it adds up over time. There are just so many factors other than just saying, "by raising the loan limits, it will solve so many of the problems." I agree, it will help many, but keep in mind, we are in an election year. And because of this, I would have to guess that we will see the FHA & Conventional loan limits finalized by the end of February.

FHA mortgages are better than conventional mortgages -- Why is that?

We are now moving into a volatile market and more than ever, you need to be working with a mortgage professional that has your best interest in hand. Sometimes easier said than done. But what can you do about it?

I have always said that no question is a bad question.  If you don't think that your credit is better than average, then more than likely, you will fit into a FHA Mortgage than a conventional mortgage. This is a lot easier to state now than just in the last year because of several major changes to conventional loans. But why don't you hear about the differences?  Here are some of my thoughts.

• The lender is not FHA approved. You need to ask your loan officer if they are approved and licensed FHA. But how can you trust anyone these days, even family members. I am very serious about this. You can call HUD or visit their web site to see if that lender is approved FHA.  HUD site :  http://www.hud.gov/ll/code/llplcrit.html

• Many loan officers don't know much about FHA and how it works. They are use to conventional loans or subprime loans. Why is this?  Because you typically need to do more than just input the loan into the underwriting system. See, on a conventional loan, if you put it in the system and it says approved, you are basically done with it. In regards to FHA, it will usually come back with refer, but FHA loans can be manually underwritten. And you need to truly understand the credit guidelines and what are compensating factors to get your mortgage approved.

HUD/FHA has been around since 1934. It's a proven agency helping homeowners achieve the American Dream. Just recently, it's been much tougher to get the best rate under conventional standards.  Just a little secret that I would like to share with you.  FHA is not a monster or a bad loan as  many have classified it. Bad rumors. The FHA rates are exactly the same as conventional rates and sometimes better.  Appraisals are done the same as a conventional appraisal. This has been like this for 5 years or more now and aren't scrutinized as in the past. Here are some other things to arm yourselves with when shopping with a lender.

• If your home that you are refinancing or purchasing is in a declining market or there is an oversupply, this will be a problem with conventional loans. You will be penalized at least 5%, meaning that your LTV will be reduced at least 5%. This is not the case with FHA loans.
• FHA in most cases is not credit score driven. But with many lenders, you need at least 2 scores above 500. But with conventional mortgages, the lower the credit score, possibly the higher your rate. And if you ever have a loan officer tell you that you fall into another type of FHA category because of your credit, this is FALSE.  They are lying to you. There aren't any tiers for rates as of yet. They are working on this though. Please check back to my home page for updates.
• And lastly, as I mentioned above, if you are putting less than 30% down and have a credit score less than 680, you will be penalized also. I will tell you this, that your conventional rate will be at least 3/8% higher than the FHA rate just based on this information.

Conclusion :  Just be aware of what you are being told and advised. Do a little homework, depending on how you came across that lender and/or loan officer. I hate to use the word sales person, but that is what many of these loan officers are, just sales people. Some may seem nice, but they will tell you what you want to hear. And one more piece of advice. If the loan officer doesn't send you a Good Faith Estimate within 24 hours of speaking to them, this is usually a red flag. But there is more to a good faith estimate than just a bunch of figures. Don't always believe the piece of paper that it is written on. I will go into more details at another time. I just wanted to make you aware of this.