Why the push on FHA's?

[Anonymous]

All of a sudden it seems like FHA loans are popping up all over the place.  As  one who had only dealt in  conventional mortgages in the past...Im curious as to the benefits/drawbacks of these loans.  I did go to the website to check it out, but cant make much  heads or tails....Im looking to refi (sadly my scores dropped durring the time I have owned my home) and everyone I talk to  is steering me to an FHA refi...any advice or info??

As always, thanks!

[Anonymous]

The reason there is such a big push on FHA loans right now is because of the meltdown of the sub-prime mortgage market.  Before the meltdown sub-prime conventional loans were the answer to homeowners looking to purchase and refi with bad credit and hard to document income.  Some of the programs available through sub-prime were 80/20 100% financing, stated asset stated income loans, no doc loans and various adjustable rate loans.  Since the meltdown these programs have all but dissapreared and are no longer available or are very very hard to qualify for. 

Which is why there is now a large push for FHA loans they are basically the only answer for borrowers with poor to fair credit to qualify for a mortgage with high loan to value ratios.  FHA loans are much safer than sub-prime loans because they are backed by the FHA and do not have a lot of the hazardous conditions sub-prime loans had like adjustable rates, and prepayment penalties.  One draw back of FHA is mortgage ins. which is required to be paid upfront and monthly for at least 5 years on all 30 year FHA loans.  This adds cost to the total loan amount and monthly payments but insures the lenders ability to lend up to 97%.  Other than that there are no major differences between terms and payments on FHA loans and FHA rates are very competitive in comparison to conventional loans and usually for those with low ficos much better.  If you have a high LTV and low ficos I would say that FHA is the best mortgage option out there right now. If you apply for FHA just be prepared to provide a lot of documentation and be ready to explain any negative/derogatory info that shows up on your credit report.

[Anonymous]

Thanks so much for this info!  Its so hard to  suss out whats what it seems like these days...am curoius,  is there a difference in the PMI one  would have with a conventional and the  MI on an FHA?  Are they about the same?

[demi]

I was originally doing a standard, with zero down.  Zero' s have dried up around here.

[ShanetheMortgageMan]

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madameozzie wrote:

Thanks so much for this info!  Its so hard to  suss out whats what it seems like these days...am curoius,  is there a difference in the PMI one  would have with a conventional and the  MI on an FHA?  Are they about the same?

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The monthly PMI on FHA is .5% of the financed loan amount per year (.5 factor), divided over equal monthly payments.  So on a $150k loan amount, it's $750/year, or $62.50/mo.  The only time there is no monthly mortgage insurance on FHA is if it's a 15-year term or less, and the loan-to-value is 90% or less. 

Mortgage insurance on conventional financing is a little more involved to calculate, but for some general figures... on a purchase with 700+ scores, roughly the factor is .96 for 97.01-100% financing, .82 factor for 95.01-97% financing, .78 factor for 90.01-95% financing, .52 factor for 85.01-90% financing, and .32 factor for 80.01-85% financing.  Other items that impact the factor negative/positively are the transaction type (purchase vs. rate/term refinance vs. cash out refinance), occupancy (owner occupied vs. second home vs. investment property), loan term (25 years & under, or longer than 25 years), FICO scores, property type (3-4 unit, manufactured home), and program type (normal conventional vs. community programs) to name a few. 

A fairly easy to use conventional mortgage insurance calculator can be found at http://www.mgic.com/is/html/ratefinder.html, http://mortgageinsurance.genworth.com/RatesAndGuidelines/RateFinder.aspx is another one.

[Anonymous]

Thank you so much guys...all the info was greatly appreciated...I just dont know if I should wait it out a bit longer once my scores finish bumping around....

right now I want  to refi my 1st and heloc into one...my 1st has a PIF of $110,000 currently set at 6.125% and my HELOC is a bal of $21,000 sitting at a variable right now of 10%...so Im est. a total loan refi of about $136,000 incl costs.  If I can get the appraisal to come in where we think it should $169,900...Im hoping that the LTV with me only  needing to refi $135,00 is enough to be below the 80% line....which would eliminate PMI in a conventional 30 yr fixed...or am I way off base on this one?

[ShanetheMortgageMan]

You are almost correct in your thinking...$136k loan amount is 80% of $170k, not $169,900... but if you just need a $135k loan amount the $169,900 appraised value would be enough. 

What are your FICO scores? 

Which way are values going in your neck of the woods? 

Did you take the HELOC out to purchase the property or did you take it out afterwards?

[Anonymous]

Well,  my current mid score is 600...still waiting for everything to post/be finished disputing. 

I  did an 80/20 with tthe HELOC to purchase only

Market is quite stable here in my area of the state (Colorado)

[ShanetheMortgageMan]

I'd wait until everything to post/finished disputes as you want to make sure your credit score is as high as possible for conventional interest rates - there are new rate adjustments for people with less than a 720 score and loan-to-value over 60%.

[Anonymous]

What type of rate adjustments?

You guys are sooooo awesome!