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Are FHA Loans always the Best Deal?

first time home buyer, first time buyer program,first time buyer,  fha loan, california fha,  california first time home buyer

Zero Down (conventional)

vs.

3% Down. (FHA)

$200,000 Purchase Price*

Many people have fallen to the myth that FHA is some sort of magical government agency that provides special loans to first time buyers.  WRONG. The truth of the matter is that FHA is only a type of loan- a government insured loan for which borrowers pay... and pay.  The government does not lend the money on FHA loans, the loans are only insured.

 

Years ago, it was more difficult for first time home buyers to purchase a home because it was the norm for the local bank to require a down payment of 20% or more of the purchase price.  Thus, by providing FHA insurance, FHA loans were a means of allowing borrowers to purchase a home with 3% down or in some cases even less.  Since

 

Conventional

FHA

100% LTV**

97% LTV

Amount Financed

$200,000

$194,000

Down Payment

$0

$6,000

Impounded Taxes (6 mos.)

$0

$1,250

Impounded Insurance (2 mos.)

$0

$113

Mortgage Insurance (2 mos.)

$0

$336

PITI Reserves (2 mos.)

$0

$3714

Total Needed To Close

$0

$11,413

     

borrowers purchased homes with smaller down payments (greater risk), the FHA mortgage insurance is  automatically  included in the loan.  In fact, borrowers have to prepay 1.5% of the purchase price for FHA mortgage insurance before escrow is closed!  The same program initiated years ago is still in tact today- costing homebuyers $$$... 

 

Enter the year 2002. California property values have sky rocketed; sources of financing have increased; and good old American capitalism has created "competition" for all types of loans and borrowers.  It is now possible for borrowers (with most types of credit) to obtain home purchase financing up to 100% of the purchase with no mortgage insurance required! Furthermore, no mortgage insurance programs are available for first time home buyers as well as previous homeowners!  Most importantly, while conventional loans are available to most types of credit (even persons who have had bankruptcies) those borrowers with good credit are rewarded with lower rates.  FHA loan rates are not based upon credit- so some borrowers are not only stuck with paying the mortgage insurance month after month, but they may also be paying a much higher interest rate than they deserve! 

 

Finally, we have already mentioned that California real estate values have increased; but because home values have gone up so drastically, an FHA loan may not be feasible for many buyers.  Maximum FHA loan limits are set by counties, and the maximum FHA loan limit (at the time of this writing, 2002) for a single family residence in California is $261,609 (the maximum loan limits for many counties in California are substantially lower than the maximum state limit).  There are many areas in California where the maximum loan limit for that particLIMITSular county is not sufficient for the home buyer's needs; and many first time homebuyers are unaware that there are conventional loan alternatives!

   

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first time home buyer, first time buyer program,first time buyer,  fha loan, california fha,  california first time home buyer

 

Compare the Difference

 

     
  FHA   Conventional
Maximum Loan Limits per County Yes   No
Mortgage insurance included in loan Yes   Not always
*Maximum purchase loan 97%   107%
Rate depends on Credit Score No   Yes
Seasoning requirement for bankruptcy 2 yrs   None with some programs
Seasoning requirement foreclosure 2 yrs   Depends on program
Open Collections None   Depends on program
Drop mortgage insurance with equity No   Yes
Non-verified (stated) income programs No   Yes
Streamline refinance Yes   No
Non-occupant cosigner Yes   No
       
* There is a 102% FHA program- 97% first mortgage and a 5% second mortgage.  Qualification for the 5% second mortgage though is based on low income limits set per county.
*FHA rates are not guaranteed lowest rates, and the rates will vary by lender.
       

Click Below to e-mail us

info@firsttimehomebuyercenter.com 

 

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