What is better for you: The FHA mortgage or the Conforming mortgage?

What is better for you: The FHA mortgage or the Conforming mortgage?

Choosing between the two most popular mortgages, the FHA and conforming, can be done quite easily. It only takes a few pieces of information; your current credit rating, the amount of funds you have for a down payment, current interest rates and the schedules for mortgage insurance premiums. Armed with this information, it is possible to make a logical choice for a good home loan.

Different Down Payments

One of the major reasons that first time home buyers utilize the FHA loan is the loan down payment offered by the program. FHA only requires a down payment equal to 3.5% to the purchase price of the home. This is regardless of location size or type of structure.

However, the conforming mortgage does not have a set down payment. For a single family property, the down payment is usually 5%. However, a duplex will require a 15% down payment. Furthermore, the buyer must use a fixed rate loan for these down payment amounts.

The difference between 3.5% and 5% may not sound like much. However, on a purchase price of $275,000 the difference is $4,125. In many cases, that could be enough money to pay for the closing costs.

MIP (Mortgage Insurance Premium)

FHA will charge the borrower with two distinctive mortgage insurance. There is the UFMIP, a premium paid up front. Then, there is the monthly MIP paid with the regular loan payments.

The UFMIP is a percentage amount, 1.75%, charged on the total loan amount. The monthly MIP will vary from 1.20% to 1.25% based on down payment amounts.

On the flip side, a conforming mortgage does not charge any type of premium up front. In many cases, the monthly MIP rates are lower than rates charged for an FHA loan.

The MIP charged by FHA is required on any loan that is a fixed loan for 30 years. This premium must be paid until the loan balance dips below 78% of the home’s value. In addition, the borrower must pay the MIP for at least 5 years.

However, conforming mortgage loans do not charge MIP for loans in which the amount borrowed is less than 80% of the property’s value. If the customer does borrow more than 80%, the MIP will be dropped once the mortgage balance drops below the 80% threshold.

Picking a FHA mortgage or Conforming Mortgage: The Cliff Notes version

Some of these numbers may get confusing for the average home buyer. After all, owning a car does not make one a mechanic. By the same token, buying a house does not make one a mortgage expert. Here are some quick facts that can help most people choose the right loan for their situation.

* Down payment less than 5% – Ask your lender for an FHA mortgage

* Down payment between 5% and 20% – Consult with your lender for the best recommendation

* Down payment of 20% and higher – Ask your lender for a conforming mortgage.

Keep in mind that the mortgage rates for both products fluctuate. There are some days where the FHA rates are lower than the conforming rates. There are more days in which the conforming mortgage rates are the lowest. This is why it is so crucial to deal with a reputable lender that has access to both kinds of loans and can get you the best deal.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.

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Big Differences Between FHA and Conventional Mortgages

Differences Between FHA and Conventional Mortgages

Across the land the vast majority of home buyers use either a FHA or a conventional mortgage to purchase a property. While these loans are similar in a few ways, there are some pronounced differences. Each one has benefits that cater to a particular group of buyers. Understanding how they are different and which one is best suited to different circumstances will help buyers feel more informed about their financial situation.

FHA Loan

FHA stands for Federal Housing Authority. This agency does not make the loan itself. Instead, they insure FHA loans that are offered by approved mortgage lenders. The lender is protected in the event the borrower does not repay the loan.

FHA is committed to providing basic, conservative loans. A large number of their deals are fixed rate loans even though FHA does allow for adjustable rate mortgages.

Conventional loan

A loan that is not insured by FHA is most likely a conventional mortgage. Mortgage brokers, banks, and credit unions offer a wide variety of conventional loans. Conventional loans have more unique offerings such as interest only type of deal or a combination of a first and second mortgage used for a purchase.

Down Payments

One of the major differences among the two types of loans is the requirement for a down payment. FHA will allow buyers to pay 3.5% of the home's price as a down payment. The money used for the down payment may come from cash on hand, savings, retirement accounts or even a gift from a relative.

For conventional loans, the normal down payment is 20% of the home's value. However, there are quite a few loans that will allow a 10% or 5% down payment. The money used for the down payment must come from the borrowers own funds such as savings, investments or retirement accounts.

Private Mortgage Insurance

Both the FHA loan and conventional loan requires private mortgage insurance (PMI) if the buyer makes a down payment that is less than 20% of the purchase price. This insurance is designed to protect the lender if the loan is not repaid in full.

With a conventional loan, the PMI will be in place until the loan balance is paid down to 80% of the home's value. Typically, the PMI amounts for a conventional loan are higher than a FHA loan.

For an FHA loan, there is a fee charged at the time of the loan closing as well as a monthly amount paid with the loan payments. The monthly amount is enforced until the loan amount reaches 78% of the home's value.

Credit Score Requirements

Conventional loans have usually been reserved for customers with the highest credit scores. Due to the problems faced by the mortgage industry over the past several years, this fact is even more true today. Conventional loans rely heavily on standard credit reports offered by the major credit bureaus. Most conventional mortgages are approved by a computer system and reviewed by underwriters.

On the other hand, FHA loans will allow a slightly lower credit score. In addition, FHA will allow underwriters to go beyond the computer system and make approvals based on a borrower's complete file. Items like residence history, rental history and stable job history can persuade some FHA lenders to approve a loan for people who have scores that are slightly less than perfect.

Understanding Requirements of Appraisal for FHA Loans

Understanding Specific Requirements of Appraisal for FHA Loans in Wisconsin

The all-time low mortgage rates combined with affordable home prices have generated a huge growth in business for FHA mortgages. People considering their first home need to understand the specific appraisal requirements for FHA loans in Wisconsin.

Basics of FHA Appraisal

In a nutshell, an FHA appraisal is a conventional appraisal with additional requirements. The goal is to identify any potential repairs that would need to be completed within the next 24 months and have those items addressed before the loan is closed.

It is important to note that an appraiser does not review a home to the depth of a home inspector. A home inspection is still a good idea for a home, especially if it is 5+ years old.

FHA Appraisal Caveats

Only appraisers listed on the FHA approved roster are allowed to inspect homes and complete the evaluation. Before an appraiser is assigned to review a home a FHA case number will be assigned to the loan. The appraisal is valid for the next 90 days. The lender or borrower may change during that time period without the need for a new appraisal.

Any home that has undergone a conventional appraisal within the last 90 days will still need a FHA case number. In addition, the home must be re-inspected to verify FHA specific items. Here is a list of the items:

• Confirm no existence of drainage or water damage
• Ensure water pressure is adequate for the home without any leaks
• Any exterior and interior lead-based paint must be inspected to identify peeling, chipping or cracking
• Identify exterior access for each bedroom
• Insure the minimum 18” egress and ingress from the lot line to the building
• Test the heater to ensure proper working condition as well as air conditioner
• Ensure electrical outlets are in every room and in working order
• Test the fan/hood over the oven for proper working condition
• Ensure screens are present on roof vents and no more than three layers of roof material
• Determine that the electric box has at least 60 amp
• Properly note existing wiring that is exposed as well as cover plates missing from electrical boxes
• Do a brief inspection of crawl space and attic

Any issue found on the interior portion of the home needs to be either repaired or replaced. On the exterior part of the home any issue needs to be repaired or removed.

Specific Areas of Importance

Of the items mentioned above three seem to get the most attention; water problems or drainage issues, lead-based paint and the ingress/egress points. Concerning the ingress/egress points, common problems occur with homes that have a garage touching the lot line. This prevents the homeowner from accessing the exterior wall of the garage in order to paint. If this is the case the neighbor may be asked for an easement in order to grant the homeowner access.

Consultant Required for 203(k) mortgage

Buyers that are approved for a FHA 203(k) mortgage need to understand that the appraiser will be working with a consultant. The consultant must be approved by FHA. This individual will inspect the home and determine the necessary repairs and improvements and formulate an estimated cost. The appraiser will inspect the home and ensure that the consultant has properly identified all necessary repairs in order to conform to the FHA guidelines.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.

Getting Approved for an FHA Mortgage

Getting Approved for an FHA Mortgage

The FHA mortgage has grown in popularity over the last few years for first-time homebuyers and experienced homeowners.  The flexible rules used to qualify buyers make it one of the more attractive ways to get a home in Wisconsin.  Although the following list is meant as a guideline, keep this in mind; FHA has the authority to make exceptions for almost every rule.  Their goal is to find a way to qualify people for a loan, rather than look for a reason to decline them.

Employment – Borrowers need to have a minimum of two years of continuous employment.  It is preferred that this employment is with the same company or in the same line of work and it should be within Wisconsin if at all possible.

Credit Report – The most recent 12 month period should show signs of being able to make your current obligations on time.  Any late payment or problem needs to have a reasonable and verifiable explanation.

Ratios – In general, the FHA underwriters look at two ratios.  The first ratio compares the proposed mortgage payment to the person’s income.  This number usually cannot be higher than 31%.  The second ratio is total debt ratio which compares a person’s existing debt, as well as the new mortgage payment, to the existing income.  This ratio normally should not be higher than 43%.  However, as stated earlier, there are several lenders in Wisconsin that can get loans approved with slightly higher ratios under certain circumstances.

Down Payment – The FHA program requires a down payment of at least 3.5% of the home’s purchase price.  However, this money can be a gift from a relative or a friend.

Closing Costs – The FHA mortgage program allows the seller to willingly pay the closing costs of a mortgage, up to 6% of the home’s purchase price.  In most cases, the 6% is sufficient to cover all expenses.

Rent or Mortgage payments – For people that currently rent they must show that the most recent 12 months payments were made on time.  For people who currently own a home, their most recent 12 mortgage payments must be on time.

Bankruptcy – For people that have filed a Chapter 13 bankruptcy they must pay in the plan at least one year, on time, before they can be considered for an FHA loan.  For people that have filed Chapter 7 bankruptcy, they must wait 24 months after the bankruptcy was discharged.

Past Foreclosure – For any borrower that has a previous home foreclosed, they must wait at least 3 years after the final foreclosure before they can be considered for an FHA loan.

If you meet these guidelines then it is quite possible that you have a good chance of getting approved for an FHA mortgage in Wisconsin.  For people that may have a couple of strikes on their credit, such as a bankruptcy or foreclosure, you need to understand that you too can qualify for a FHA mortgage loan.  It is simply a matter of allowing enough time to pass so that the negative items no longer hamper your chances of getting the loan.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact FHA directly to learn more about its mortgage products and your eligibility for such products.

Original Post - FHA Mortgage Approval