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Are FHA Loans
always the Best Deal?
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Zero Down (conventional)
vs.
3% Down. (FHA)
$200,000 Purchase Price* |
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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
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Conventional |
FHA |
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100%
LTV** |
97%
LTV |
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Amount Financed |
$200,000 |
$194,000 |
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Down
Payment |
$0 |
$6,000 |
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Impounded Taxes (6 mos.) |
$0 |
$1,250 |
|
Impounded Insurance (2 mos.) |
$0 |
$113 |
|
Mortgage Insurance (2 mos.) |
$0 |
$336 |
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PITI
Reserves (2 mos.) |
$0 |
$3714 |
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Total Needed To Close |
$0 |
$11,413 |
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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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Click Below to e-mail us
info@firsttimehomebuyercenter.com
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Compare the Difference |
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FHA |
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Conventional |
| Maximum
Loan Limits per County |
Yes |
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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 |
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No |
| Non-occupant
cosigner |
Yes |
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No |
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*
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. |
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*FHA
rates are not guaranteed lowest rates, and the rates will vary by
lender. |
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Click Below to e-mail us
info@firsttimehomebuyercenter.com
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