FHA loans have been more wisely used in recent months as the choice of mortgages. What I hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage and the real estate industries. The realization has been that 30% of the subprime mortgages in the last 5 years previous to the last 2 years should have been FHA mortgages, not subprime.
The subprime loan for many years could go down to a 500 credit score, depending on your equity position. But your rate was usually higher. If your score was higher, the less you needed to put down, the lower your rate. Sounds good, right? Wrong, because the subprime rate was always higher than the FHA rates.
To compound this, so many said just because you had a conventional loan, you had the better loan. This was not always true when putting 3 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now? Even with 10% down and credit scores less than 680, FHA loans in many cases, will be the best mortgage for you.
So you could argue the fact that this is just my opinion, that FHA mortgages in many cases would be better for you. True, even though I have over 16 years of experience as a loan officer in the mortgage industry. But numbers don't lie. Let me show you.....
The example below is based on a $300,000 purchase price with 5% 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 720, certain fee penalties would apply to you, which would increase your rate. The FICO (credit score) that I am going to use is 659, which is above the average credit score and I will still show in this example that FHA loans are cheaper, even with 5% down.
***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. And many lenders can't do FHA loans under 580. I can still do credit scores down to 500 with a manual underwrite.***
Disclaimer : These rates are examples, but the spread shown in the example is real. To compare this scenario apples to apples, the fees are the same and with zero points. In this scenario, there are no lender fees or points. The conventional rate also includes the penalty for the 659 credit score.
Some of you might be saying that you will be adding $4,897.00 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 $12,770.40 in payments in 5 years. This is a difference of $7,773.40 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 rate is lower, which would offset the interest that you would write off on the 7.000% rate. Just something else to remember, but consult your tax consultant or CPA.
- FHA Loans - FHA Mortgages - Conventional Loans - VA Loans - Experience & Knowledge at its BEST !!!
________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2008 by Jeff Belonger
Jeff, seems pretty simple to me and probably easier to underwrite.
Good job!
Bo
I thought MIP was less expensive than PMI. Interesting stuff Jeff!
Don't forget to tell the buyers about the 203K Streamline loan. They can add up to 35K in improvements, upgrades and remodeling to their loan at no extra cost, and use it to get a better deal by buying a home that needs repairs for more of a discount than the repair will actually cost!
BO..... . well, the easy to underwrite is not exactly that. Those with lower credit scores can be harder to process, because you need to know how to read credit and what is allowed, the credit guidelines. But thanks for the compliment.
RENEE..... . the monthly mortgage insurance is less than conventional mortgage insurance. But FHA also has a One-time mortgage insurance premium also, which gets added onto the loan amount. Thanks...
GREG..... . well, I don't add the 203-k loan because there is an extra cost... the rate. The rate is about 3/4% higher than the normal FHA rate.... and not all lenders can do 203-k loans... you need to know what you are doing and how to process them.
Good stuff J. As you know, I'm a total proponent of FHA for most of the same reasons you put forth here. With Freddies most recent announcements, it'll make FHA the most attractive program out there.
Jeff,
Thanks for the post. Yet another great post on this product offering, which is making a strong resurgence.
LARRY..... . yes, I do know... I think all true mortgage professionals believe this. As I mentioned, FHA loans should have been attractive way before now...
WILLIAM..... . my pleasure and thanks for the polite compliment...
Hi Jeff - this is a great comparison between the 2. I've done more FHA sales this year than the last handful put together. I think many just sort of forgot about FHA. I think FHA just makes a lot of sense for many people to use, for a variety of reasons.
Ann
Hi.. Thanks for your post. Its always good to see other people's perspective and tips. Keep the posts coming! I enjoy reading them and learning something new.
ANN..... . thanks... I don't think many forgot about FHA, especially when it came to lenders or loan officers. I think they went the easy route, subprime or convetional, even if it wasn't the best for the consumer. It was either because it was easier or because they weren't FHA approved... I have seen it personally... very sad.
GREG.... . my pleasure. I love doing numbers like this... you really can't say anything bad about a specific program, once you are shown the real, true numbers. Not unless you mislead someone when doing this. thanks for polite feedback.
Now if that is not black and white I don't know what is..... pretty clear cut and to the point -
Hi Jeff- i haven't done any FHA purchases, so I still have a lot to learn. Are theinterest rates higher inNY than here in So Cal? Last Ichecked, the interest rate on a $300K purchase was about 6-6/25. How woudl those numbers pencil in?
THESA..... what's funny is that it is actually in black and white... lol Even though it's very clear to understand. In either case, thanks for the comment.
CAROL..... . not one ever? In regards to the interest rates? They are basically the same in all states. Some may seem to differ if some lenders in a region charge more fees which would make the rates less. Yes, many investors have different hits for different regions, but it's no more than .125 of a point. On a $350,000 mortgage, that is only $437 ...... so the rates are virtually the same. And you said... 6-6/25??? do you mean 6.625% or 6 5/8%?? thanks
No, Jeff, I menat 6.25, and that is on the high side. And no, all my sales have been conventional, I have even done deals when the buyers had $950K cash!!
Jeff Excellent post Every Realtor and loan officer should read it!
Graet post Jeff,
I have been putting clients into the FHA loans for the past couple of years through my favorite mortgage guy and ist worked perfectly each time and my clients are very happy. Thanks for explaining it in simple terms.
John in MA
Some of you might be saying that you will be adding $4,897.00 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 $12,770.40 in payments in 5 years. This is a difference of $7,773.40 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 rate is lower, which would offset the interest that you would write off on the 7.000% rate. Just something else to remember, but consult your tax consultant or CPA.
Great way to break it down, I never thought of using that method to overcome some of my clients MI objections, thanks for the information its great.
When I was doing loans several years ago some of the UFMIP was refundable in the first seven years. Does FHA still offer that?
Jeff-
Man oh Man this is a great post! FHA has ALWAYS been a tremendous option, and so many that have gone subprime in the last 10 years could have gone FHA. Why did they not? Because the Subprime lender was not LICENSED to go FHA. I cringe when I see these shops that are just getting their FHA license, proclaiming that FHA is the new "subprime".
I have shown these very numbers to people, and they are surprised to see that FHA can be the better (and cheaper) option, particularly if the credit score is below 700. Excellent post!
I started my career many years ago with first time buyers and FHA loans and now I find myself in this new declining market back to FHA loans. It also, has a great program called the 203K for repairs which are needed in many of the foreclosures. Try finding that available in the conventional market with only 3.5% down.
Nicki in AZ
thanks for the blueprint. this was a good outline and a good comparison..i too i have heard that "fha is the new subprime' wooo hooooo
Question, I thought FHA was going to eliminate the credit score of 580...like you I can go under 580 as well but I thought it ws going away. We haven't seen that yet but I was wondering if you had seen anything fly down the pipe? Thanks!
Excellent read, very informative for someone outside the real estate industry. The comparison chart is a great illustration and really breaks down the nuts and bolts of both types of loan programs.
Hi and thanks for the good article. I'd really like to see the same comparison run out if the buyer has credit score of 710, which many of my buyers do. I generally see the conventional rate about the same as FHA. So when the interest rates are the same, because the credit score is better, then what is the comparison?
thanks!
Laurie,
This is Jeff's blog so I will defer to him.
I thank everyone for their comment....I will respond to everyone's comments later today.... but I did want to respond to just one comment right now, so people get the right message now and not assume now..
JAY.... . I appreciate your feedback and input. I am not trying to put you out there or single you out on purpose. And I hope my response doesn't sound negative. But I fear someone that does both real estate and mortgages at the same time. No knocking you for the fact that you do this. You could be very good... But I have my reasons for my opinion. Read this comment from a loan officer on my previous post about these comparisons back on September.
http://activerain.com/blogsview/701392/FHA-loans-vs-Conventional-loans-Numbers-dont-lie-A-5-down-comparison#3157627
You talk about full disclosure and transparency? I have a problem with transparency and how people use it so loosely and how it's misused and misunderstood. And I say this because this is what you said...
"That rate on that day would have yielded the originator an average of 1.125% in YSP and/or 1.875% in SRP. Plainly stating that the FHA rate in your comparision was good for marketing purposes and to get your point across."
This comment might sound like I am attacking, but it does upset me.. did you read the details of my blog? Did you read this part. which I mentioned it twice in my blog.
"The FICO (credit score) that I am going to use is 659, which is above the average credit score and I will still show in this example that FHA loans are cheaper..." & "The conventional rate also includes the penalty for the 659 credit score."
I mentioned it twice because people fail to read the details and or skim through blogs. You do know that fannie and freedie have a pricing hit of 1.5 pts on credit scores under 659 and with 5% down, right? So in your example, I am making 1.5 pts...
When pricing out loans, who cares about YSP.. you must be a broker. I am a banker. But it's irrelevant because I said, this is the price that I could offer you with no lender fees. Meaning that I am also charging no points... so you do the math.... your total profit would be $4,275 with no other fees. My clients get professional advice, opinions, education, details, and great service. That is a cheap price to pay for that. Also, did you see me tell anyone what state that this example was in? Do you know that SRP's are different in different states? Some investors have pricing hits for different states also.
Then you said this... "That being said there are some drastic changes afoot for FHA. The increase in the down payment from 3% to 3.5% and the lifting of the suspension of the risk based premium for UFMIP currently at 5.5%. Both of which will narrow the pool of buyers for this product."
UFMIP at 5.5%??? Huh? I am completely lost on that one. It's 1.75%.. and reduce the pool for buyers for this product? Investors will only stay afloat by offering FHA.... this is my opinion, but talk to any investor, because of the conventional hits. Talk to most mortgage bankers and or brokers... or loan officers. They will all say the same.
Overall, I will never sell YSP and SRP... loan officers can't even sell rate correctly. Your statement that said... "The information here is very valuable but only when full disclosure is present. Complete transparencey is the only true way for our industry to regain the trust of our Realtor partners and consumers."
I am not always politically correct when I reply or comment.... it's my passion for what I do. I don't expect perfection, but I do expect common sense and knowledge. You might use transparency and full disclosure to out-sell your competition.. I use knowledge and share this with the consumer or my borrowers. I don't consider myself a sales person. I beat my competition down with explanations that the other loan officer didn't offer. That is what I am about. If my YSP and or SRP is better than my competition, which makes my rate lower, that is all that should be concerned. That and service.... Good rates, great knowledge, and great service...
Overall, I pride myself on stats and figures... I have a very firm grip on how to compare....
Again, sorry for the semi attack... but it goes to my point about someone taking on both real estate and mortgages at the same time. How does one keep up with the daily changes? Not assuming, but does this rebuttal prove my point? Inquiring minds want to know... thanks for your honest feedback and input...
Great post! I know that our main bank says that 40% of what they are doing now is FHA loans. I have thought it was the way to go since they raised the loan amount. For New Mexico, it's around $275K. Thanks for the info. I was recently comparing the two options myself.
Last I heard was that FHA did not underwrite by credit scores... this is a Lender preference. Most Lenders will not accept a loan FHA or Conv that has a credit score under 580... FHA does not go by that rule. I have been out of the Mortgage end for a year now though - things may have changed on the FHA side - I know the Conventional side has changed dramatically in the past year!
Jeff - where were you when I was Underwriting! Would have loved to have Loan Officers with FHA expierence! Keep it - love the fact you are educating all of us!!
In my market almost all of the lenders were not doing FHA loans until the last year or so. I worked the VA market heavily and had to work hard to get lenders a few years ago to properly service my clients. Since the sub-prime crash, all of the loan officers are calling themselves VA specialists. I am still not seeing many loan officers who understand and work FHA.
I do not work with any of those who fall in that category.
Your matrix does not reflect accurate rates. No sane loan officer is offering 7% for a conventional loan. As of this morning, 6% is paying a almost a whole point YSP through Countrywide, and 6% FHA is paying exactly the same through Chase, and Taylor Bean. This makes the initial benefit of FHA only $25 bucks different or better after recalculating both payments at 6%. But this is not an advantage as I will describe next.
Because FHA requires you to pay Up Front Mortgage Insurance Premium of 1.75% and is typically rolled into the loan, you will be paying more in interest every month for the life of the loan. In this example there is $4,987 rolled into the loan. Because you are now financing this dollar amount in the loan (at 6%)you will pay more interest over the life of the loan...$10,774.09 to be exact! Evin if PMI were to exist for 10 years on both loans before it was no longer required, the most you would spend is $3,000 more in total payments ($25 a month x 120 months) higher at first for a conventional loan, the conventional loan is still $7,744 better than the FHA ($10,774 - $3,000 = $7,774 better off with a conventional)
I have yet to find a borrower that has gotten a rock bottom FHA rate from the average loan officer. Most loan officers "specialize" in FHA due to the fact that it is the #1 highest revenue earning loan offered that is available to sell as a loan officer. Many (not all) loan officers, make much more money on FHA loans than conventional loans due to most FHA borrowers are not as sophisticated or have as much knowledge of the differences between a conventional loan and a FHA loan, thus giving a greedy loan officer the chance to take advantage of the borrower and not offer them the lowest rate available and giving them an interest rate that pays the loan officer much more than if they would have sold a conventional mortgage that was in the best interest of the borrower.
In today's lending environment it is more important than ever to educate all borrowers about the differences in loans. THIS ARTICLE AND ESPECIALLY THE MATRIX OR CHART SHOWING THE DIFFERENCE IS NOT ACCURATE, AND IS SHOWN ONLY TO TRICK PEOPLE INTO TAKING AN FHA LOAN. THE NUMBERS IN THIS ARTICLE DO LIE!!!
This is vary true. Brokers who refused to get FHA approved because of Sub prime should have there license taken away this business is about the clients.
The fact of the matter. For those putting 3-5% down AND those that have a realatively low credit score, the interest rate will be BETTER on an FHA loan. The pmi will be LOWER as well. Its true, there will be upfront MI but even taking that into account, the total cost over 5, 10, 15 years (or more) will be lower on an FHA loan.
I really liked this post, Jeff. I've featured you on Shak & Jill as a result! Thank you!
Some good points about added interest Daniel. I would also prefer to apply the 1.75% UFMIP towards principal instead. I also thought that MIP stayed with the loan forever and did not come off once 20% equity was achieved. If that is the case then the added cost of 30 years of MIP must also be considered.
The presence on ysp/srp has no bearing on this example whatsoever.
It is just something that 'some people' like to talk about like they are giving up some big secret.
Great job as usual Jeff!!
Don't worry about Daniel. He can't read.... AND he sells to Countrywide. BWAHAHAHAHAHAHAH
DANIEL..... are you a loan officer? If so and I was one of your clients, I would fear for my life.
People.... this might be a rude comment, but obviously Daniel didn't read my whole post or understands how to read a rate sheet.
First off, the date of this post is 6/15/08... I even said in the post that rates change.... DAILY... secondly, as I pointed out to JAY, these people are forgetting that this is with 5% down and a fico score of 659. Daniel, fico score is your credit score. I just thought I would have to explain that, since I have to assume that you don't know how to truly compare rates.
In regards to interest, did you see that I stated that you should speak to an accountant about this? besides, most people don't care much about anything except for true savings. $200 a month and recouping your money quickly is a great thing. Which was pointed out in this post...
You said this... "I have yet to find a borrower that has gotten a rock bottom FHA rate from the average loan officer."
Well, you haven't spoken to my clients then... lol I closed someone 3 weeks ago who got a 6% FHA mortgage from me...
Lastly... I am not sure who you are. You aren't brave, I will say that. Since you are hiding behind a fake name. But this is what you said.. "THIS ARTICLE AND ESPECIALLY THE MATRIX OR CHART SHOWING THE DIFFERENCE IS NOT ACCURATE, AND IS SHOWN ONLY TO TRICK PEOPLE INTO TAKING AN FHA LOAN. THE NUMBERS IN THIS ARTICLE DO LIE!!! "
LOL>.. sorry, I consider myself very professional and I feel that I am stooping to your level... but I hope to god you aren't a loan officer. You HAVE NO CLUE in what you are talking about... you and people like you are part of the reason why we have a bad name, bad mortgages, and in some cases, foreclosures.
Yes, I educate my borrowers and I would consider myself to be one of the best out there doing this. It looks like you are the opposite, that you give misinformation out there. That you mislead... and you have prooved it today my friend. Again, read my blog post 2 or 3 times... see where I state that this scenario is with 5% down and a credit score of 659.... and then redo your figures... and then call me a liar. Please post your figures in this comment, so I can see how you came up with your so-called logic...
Oh yea... one more thing... a 5% down conventional deal ... FHA will still be about $56 cheaper a month just on monthly mortgage insurance alone. How do you explain that one?
Everyone else... I am sorry, I will get back to everyone.... but I need to address Lucien... it seems like those that disagree won't show their faces... does anyone find that strange?
Lucien.... . are you a loan officer? How do you know that Daniel's points are good if not one? Do you know that the monthly mortgage insurance on a FHA loan does fall off just like it does on conventional loans.... this was changed many years ago and I have written about this.
Maybe for some of you guys, Jay, Daniel, and Lucien, I should hold a FHA webinar.... maybe if you hear what I am saying, you would understand all of this.
For any consumer or realtor reading these comments, I do apologize for my tone. But please, please don't listen to a few in these comments. Please consult a professional loan officer... and you know what, call 6 of them... if the majority says the same thing, that usually means that it is correct. For disclaimer purposes, I said, usually... not unless you picked 6 that have no clue.
In todays market I'm pushing FHA primarily.
I bet they would delete your comments if it was their blog.
Big of you to let the dummy's comments stay
Jeff I understand your semi attack and admit it may have been deserved. I too am passionate about my business. Now, I wanted to respond to your comments.
You wrote:
JAY.... . I appreciate your feedback and input. I am not trying to put you out there or single you out on purpose. REALLY?
I mentioned it twice because people fail to read the details and or skim through blogs. You do know that fannie and freedie have a pricing hit of 1.5 pts on credit scores under 659 and with 5% down, right? So in your example, I am making 1.5 pts...
Jeff I fully understood the reason for your 659 "penalty" quote. As you mentioned later in your response states differ. Mortgage Banks differ. Fannie and Freddie seller servicers differ as well. Some seller servicers get better deals than others. Not a point to argue.
When pricing out loans, who cares about YSP.. you must be a broker. I am a banker.
In fact you are right I am a broker. Let me remind you and everyone that reads this post that while brokers get the bad rap for the subprime mess, brokers can only use the programs that BANKERS produce. So as a banker Jeff, unless there is a fraud component to the broker's file your lack of responsible underwriting is largely to blame for the subprime mess not the brokers origination of mortgage loans. Furthermore, without bank's programs, the loans would have never been funded in the first place thereby never reaching the investors in the secondary market. It was the greedy investors in the secondary market that paid you Bankers SRP to deliever the loans so don't tell me SRP doesn't factor into your deals.
You pride yourself on facts and stats then chew on this, competition in a true capitalistic market will produce the best deals for the consumer. Statistically speaking mortgage brokers have orginated 60%-70% of all mortgages nationwide. Unless your are saying that the American consumer is a complete idiot, the consumer's choice has been Brokers as the better deal. When was the last time a banker looked out for the consumer's interest in any transaction?
I apologize for my typo, you are right UFMIP is at 1.75% but is going to 2% and the monthly MI factor is currently frozen at .55% regardless of credit score. That is the suspension that is being lifted.
Overall, I will never sell YSP and SRP... loan officers can't even sell rate correctly.
I am in agreement with your statement above to the fact that loan officers cannot sell rate correctly.
Again, sorry for the semi attack... but it goes to my point about someone taking on both real estate and mortgages at the same time. How does one keep up with the daily changes?
Finally, Jeff I stay informed as a matter of choice and a God given ability to be organized. No doubt if you are married with children as I am then you would fully understand it is possible to multitask and be exceptional at it.
I have received numerous comments while I was writing this response. Your responses to Daniel and Lucien while indictive of an elitest banker attitude are completely void of any professionalism. Frankly they are also disappointing. Through some of your other posts you come across as a professinonal willing to go the extra mile. I guess that was poor judgement on my part.
The sole purpose of my first comment and this response is to recognize that we all have a differences of opinion. Despite what you may feel about me and my knowledge base, I have not let my opinion of you allow me to make any comments about your creditbilty and/or your knowledge.
The fact that when someone presses you about your comments you immediately attack their knowledge proves that the last 16 years has taught you nothing. What would you do if a customer wasnt understanding your explantion, do you immediately attack them or offer them a webinar? It is a shame that today our industry has turned into a pissing contest.
In fact I fully expect your response to tell me how successful you have been and how much money you have made. Who cares! Money has never been my motivation neither has fame or fortune. Being the best blogger in cyberspace is distance second to making someones dream of homeownership a reality.
Good luck in your career I know you will continue to be successful and I will always value your opinion whether opposite or congruent to my own.
God bless Jeff.
It has always been my opinion that debate is good but I usually refuse to debate with anonymous lurkers. That said, I'm rolling up my pant legs and wading in on this one.
To "Daniel" it is your rate calculation that is flawed. If 6% is paying 1% in YSP both conventional and FHA and given Jeff's scenario the 6% conventional rate would cost the borrower .5% in DISCOUNT before the loan officer makes any money. Let's assume that the loan officer is going to make 1% in either scenario. The conventional loan will cost the borrower .5% in discount and 1% in origination. Against the FHA scenario with the 1.75% UFMIP the is .25% difference or $712. That additional fee will be eaten up in 12.88 months in the difference between the monthly MI payments.
Lets not forget that in my above scenario I was assuming that the borrower would pay the UFMIP out of pocket since they would be required to pay the conventional 1.5% in discount and origination out of pocket.
FHA loans are designed for low to moderate income people who do not have large cash reserves. The ability to finance that 1.75% plus the ability to have the seller pay for 6% of their closing costs rather than the conventional limit of 3% at the above LTV make the FHA product more "affordable". All of this is on top of the 2% less in down payment requirement.
I know Jeff personally and I KNOW he runs all scenarios to see which fits his borrower the best. I'm sure the reason he writes so much about the FHA product is that less people really understand it as evidenced by the comment from "Lucien".
95% of my business is FHA & VA loans, I do not know how I would survive with out these two great programs.
Great stuff that people should know. It was very clear until the last portion with the MIP, but that's always confusing for buyers. I don't understand where the public got such a stigma about FHA when all it means is lower money down? You've put it down simply to show the money saved period!
Jeff,
Nice analysis...I am a huge fan of FHA, as a matter of fact, 100% of my current loan pipeline is FHA. I would however challenge the assumption that the rate would be 100bps lower on FHA than conventional. The numbers shift a little bet FHA is still a better deal with more realisiting interest rate assumptions
CAROL.... . well, I still can't assume. Even though you say 6.25% of a rate is on the high side, I will have to disgare and say that is a good rate in today's market. But in order for me to say that, I still would need to know fico score, type of loan, ltv, loan amount, and type of fees. 6.25% could be great if the loan amout was $400,000. It could be great on a $150,000 mortgage with $2,000 in fees. Just my opinion on how I view that. thanks
JOE.... . I agree, that many should read this. And I am thankful that Active Rain featured this in their newsletter. And as you can see, some will disagree with me, which is fine. But not one has shown the proof yet. and thanks for the kind words...
JOHN..... . I am glad that you deal with a true mortgage professional that would understand all types of mortgage programs and not just 1 or 2. and thanks for the compliment.
SEAN..... . my pleasure... I have been breaking things like that down since my 2nd year in the business, back in 1994. If you can't show numbers in terms like this, how does a borrower then understand. What's sad is that many loan officers couldn't even do this. As you can see in some of the comments, I have people telling me that I am a liar or can't break it down correctly. But not one has proven me wrong as of yet. It's all talk. In any case, thanks for the polite comment.
ED.... . yes, but only on a refinance transaction, is it refunded back into the MIP calculations. It's now 3 years though. But if you sell your house in less than 3 years, there is no MIP refund. thanks for asking.
ROBERT..... . well, we have a few people in these comments that feel differently. Please read them and chime in. I don't have a problem with someone telling me if I am wrong, but I need proof, not opinion. What I showed were facts drawn from doing an actual, real scenario, if someone was to buy now. But none of those that disagree have shown me anything differently. Besides, they aren't reading the pricing hits. Which they aren't comparing apples to apples.
NICKI.... . well, for me, FHA loans never went away. Even when loan officers were putting people into the 97% or 100% conventional programs, in many cases FHA was still cheaper in rate and MI. And in regards to the 203-k loans, yes, it's still cheaper to rehab. A conventional rehab, you need 10% down. But, you need a good loan officer that knows how to do a 203-k loan. There is more processing that goes into it...
Jeff,
Thanks for the information. I just worked on my first FHA Loan with a client. What about the $7500 tax credit for first timers?
Good post Jeff...as we fade from 2006 and FHA loans become more and more prevalent, I am reminded of an occurence in the early 2000's. Around this area (Balt/Wash), you saw almost no FHA loans. The prevailing opinion was that a seller, when in a multiple offer situation, should take the conventional buyer over the FHA buyer when the offers were similar. I had a buyer that could only write FHA (sorry, don't remember why). We wrote an offer for a TH in the Baltimore area and lost out to a conventional buyer. Months later, when the property settled, I ran the numbers and found that the seller actually netted a couple thousand less with the conventional offer. Seller's agent was relatively new and I assume was just going by "conventional" wisdom of the time. In spite of constructing our offer in a favorable way to overcompensate for unfavorable aspects of an FHA loan, we lost out due to ignorance.
Great info. Thanks.
This is a good illustration to help people understand. Here in Orange County, CA FHA loans had not been very useful due to home prices until the recent changes.
DEE.... . I write one of these every 3 months or so.... and yes, I am getting sick of loan officers or lenders advertising that FHA is the new wave of subprime mortgages. Sorry, but they should be shot, because they were probably the same ones that put people into subprime loans instead of FHA loans. Sad yet so true..
CATHERINE..... . FHA usually doesn't control the credit scores... it's Wall Street and the investors. FHA will allow you to do loans under a 500 credit score, but you have to be at a 90% ltv or better. But can you still do a 499 credit score at 90%? I know I can't.... I can broker that deal out to someone, but the pricing is like a subprime loan. Just food for thought.
JAY..... . I already commented on your comment. Here is my comment... My Comment to Jay. And I see that you left another comment, which I reply to it when I get to it. I needed to gather some more energy to reply, considering you called me 'not a professional' and a few other things... yet you were then able to tell me that I haven't learned anything in 16 yrs or that I am professional. Isn't that calling the ketle black? In any case, wait for a good reply to your so-called comments. Yes, I am dropping the gloves.. lol
SARA...... . thank you very much. I am glad that it breaks it down and it's easy to follow. And I semi apologize for a few commenting that have no clue how to price out a loan. thanks
LAURIE..... . I would be glad to show you a comparison. The same ones that argue with me in regards to this scenario are probably chomping at the bit. I will do a comparison later today and let you know about it. AT 5% down, there will still be a difference and FHA in my opinion, will still save you money monthly, but it won't be that great of a savings. Just mortgage insurance alone, as you can see, it about $56 a month savings... I would bet it would be about another $20 without doing the numbers.. which would make your savings $76 a month... thanks
JAY.... . thanks.. you can jump in there though and show me what you come up with. You already disagree with me on my chart and the rates that I am using, which I will talk about when I reply to your next comment. thanks
BLAKE..... . well, 2 things... FHA loans should have never fallen off. I still stick by this statement that I make often. Between 2001 to 2005, about 30% of all subprime loans should and could have gone FHA.. getting to your 40%... I have heard anywhere from 30% to 45%. I know my office alone is at about 90% of all business that is FHA. thanks and thanks for the polite compliment.
My previous point/comment has been validated. You are doing well Jeff and I hope that continues to work for you.
I resign to your experience, superior knowledge, and overall mastery of the art of "people skills".
God Bless.
I want to apologize to everyone still reading these comments and to the general consumer. For those of you that have ever tried applying for a mortgage and the loan officer said that you were qualified or approved, yet at the very last minute two things happened...
I bring all of this up because of some of the attacks from those that really don't know what they are doing. They either have no clue or have nothing better to do. As you can see, some can't specifically answer some questions with proof. Or answer the question 100% and not skate around the question with half answers such as, every lender is different. Pricing can be different. Really? no kidding. But not a whole 1% off and they keep leaving something out.
JAY....... Validated? 2 wrongs don't always make a right. There is no reason to mock me, when you have talked to someone else who seems to agree with you. Just because they agreed with you doesn't mean that they are right. Besides, you made like 3 different statements, yet you tell me that your statement has been validated? Which one? Are you saying that everything that I stated is wrong and everything that you stated is correct? I will ask you 2 specific questions below so as not to confuse the issue.
Let me cut to the chase Jay. Because you replied back in code, yet never specifically answered one of my questions. Here is one of the statements that you made. "Jeff I fully understood the reason for your 659 "penalty" quote. As you mentioned later in your response states differ. Mortgage Banks differ. Fannie and Freddie seller servicers differ as well. Some seller servicers get better deals than others. Not a point to argue."
Let's start over on this and stop using the different states and different servicing. All of that is small patoes because you are only talking about an 1/8th of a point there or a 1/4 of point here. That still doesn't make my spread of 1% between FHA and conventional loans that you attacked, that it will change it by much.
A.. So... let me ask you this question.... do you have a penalty on a conventional loan with a 659 credit score with 5% down???? Is there a pricing hit? And if so, how much. Give me your lowest penalty and don't use excuses that each lender is different.
B.. Secondly..... you made this statement.. "I apologize for my typo, you are right UFMIP is at 1.75% but is going to 2% and the monthly MI factor is currently frozen at .55% regardless of credit score. That is the suspension that is being lifted."
You are telling me that they are lifting the suspension? It is 1.75% for UFMIP and is staying at 1.75%. You said it's going to 2%...??? WHo said this? Your broker? A loan officer that you know that validated your previous statements? Can you give me the mortgagee letter that proves this? You might want to fully read mortgage letter 2008-22. It states that as of October 1, 2008, the UFMIP on purchase monies will be 1.75%. It says that all streamline types will be 1.5% and that all FHA secure loans will be 3.00%. You might want to read this : Changes on UFMIP
Now... why did I come out and sound semi mean and or rude in my comments to you. Because you have claimed to be right now 3 times. Yet, you haven't answered my comments in detail. And now you tell me that you have been validated. I have no problem that people make mistakes, or that they don't know everything. Hey, I am not perfect and will admit when I am wrong. But you have tried to discredit me. If you could just answer both of the issues that I just mentioned, we'll see what the real deal is then.
My comment is to Jay
I find it quite interesting that you would come into Jeff's blog and say he is wrong.... then dance circles around his questions.
Jeff is a knowledgable loan officer and from what I read, is accurate here. Being great at what you do tends to invoke jealousy in some it seems.
Jay, after visiting your profile, I see that you are a loan officer AND a realtor..... Which one are you good at doing? <= *blog ideas popping into my head*
Jay: Can you point me to the Mortgagee Letter that says FHA is going to 2% UFMIP?
Wow, this has become a steel cage match... (cue in Sardi).
But seriously the issue is important to many a consumer and when the answer is this clear it shouldn't be this difficult to comprehend. Jay, I think I maybe see your original point but in your effort to defend it you betray your lack of knowledge (sorry dude, that's not an attack, it's a statement of fact. You attribute the 5.5 UFMIP to a typo, well that's one HELL of a typo especially considering the real number is 1.75. You then state UFMIP is changing to 2% and that is just wrong.) I believe your biggest gripe was with the way Jeff chose to do the rate comparison. How can we know a 6% FHA rate was equal to a 7% conventional rate that day?
When you consider the scenario Jeff paints requires an additional 1.5% in points on the conventional loan the 7% rate is not a stretch. That 1.5% by the way is NOT negotiable, it's a delivery fee meaning FNMA or FHLMC require it to accept the loan. Since most people with only 5% down don't have 1.5% laying around to pay points, it is accurate to assume you will need to build it into the rate. A great website to see exactly what FNMA is requiring each day for their loans is here. The 1.5% delivery fee MUST be added to those yields in order for the loan to be bought.
Let's back away for a second though. Beth (I'm jumping in too so if I start to drown please pull me out!) so accurately mentions the conventional loan delivery fee (1.5%) is very close to the FHA UFMIP fee (1.75%). Keeping these fees excluded and penalizing FHA for the extra .25% in their fee ($750) what comparisons can we make?
Well monthly private mortgage insurance on the conventional loan is calculated at .94% of the loan amount, while FHA is a flat .55%. That leaves us with mortgage insurance payments of $223.25/mo for conventional and $130.63/mo for FHA. In a dollar for dollar comparison you save $92.62/mo going FHA but you would have to keep the loan for at least 9 months until you make up the extra $750 you paid for the FHA UFMIP. Since in this market you can safely assume any owner occupant is planning on keeping their home more than 9 months it's really a no-brainer.
Just to further clarify- someone mentioned something about FHA monthly PMI not going away? That is completely false as of about '01 or '02 as I recall (maybe longer... I'm getting old). FHA monthly PMI is required for 5 years but then drops with the same basic criteria as conventional mortgage insurance. Considering the blistering rate of appreciation we are seeing these days (swim in THAT sarcasm) I'd bet money you will be waiting 5 years to get to 80% in most markets.
Bottom line is you can create a scenario where conventional beats FHA but it won't represent the average transaction. If your credit score is 720 or greater AND you are buying in a non declining market then you might be better off with a conventional loan. Either way the numbers should be crunched for every deal and all factors should be considered by the customer so they can make the best decision.
The vast majority of the time FHA will be the way to go. Hell in Florida it's the only way to go since 5% conventional is pretty much history (not comparing the other govie standbys VA and USDA). Jay you do need to brush up on your FHA knowledge and you've gotten a lot of well deserved grief about the "dual role" model as a result. Personally knowing how little I know, and considering I am a full-time, life devoted to this business type lender I can't imagine how you feel you can do a good job at both at the same time. Feel free to ask Ray Levy about how I have had to come in a save deals from Realtor/Lenders that couldn't get them closed.
Remember, multitasking is the art of messing as many things up at once as possible. In this day and age of insane little details costing someone a loan, you best be able to play your "A" game all the time. That said GO GATORS (sound of GATORs chomping down on all of you everywhere!)!!!!!!!!!!
Jeff, sorry about the length of this but please continue doing what you do so well. We need to inform the customer as much as possible and you do so much towards that end. Also, huge props on keeping comments like these instead of deleting them like most would. It generates discussion that further educates people.
Gerry Suarez, Jr.
Your FHA Loan Pro!
Final response to those who existance is defined by this blog.
Tom & Gerry and their friend Jeff.
I have tried to leave this alone after all that has been said but the three of you will not let in alone. So this will my final post to this blog. No cheering necessary.
This blog has been a great source of information for me over the years. A place of lively debate and resolutions to agree to disagree. A place where typos are not met with acusations of stupidity and where apologetic errors are responsibly meet with a hearty dose of ribbing and forgiveness. Sad that this is the state of our world and industry. Sad that the overwhelming need to be right and everyone else wrong out weighs common professionalism and decency.
So let me put to bed some of the "burning questions" from the three amigos. I will not answer all of them because frankly, some of them are pointless to argue. Pointless primarily because the answer requires details which are geographic in nature and of little use to the loyal readers of this saga.
First, again let me thank Jeff for his knowledge and passion. Although it has fallen on deafs ears my praise for his knowledge has not penetrated his skull yet. I fear that unless I firmly kiss his a*$ on this blog he won't get the fact that I have conceeded to his intelligence multiple times. Oh well.
Second, let me thank Gerry for the point that Jeff's comparison is darn near pointless in Florida because a 95% FNMA deal is almost extinct. Again kudos to the loyal followers of the FHA Messiah!
Point #1
In my very first statment on this blog I errorneously assumed that everyone knew about the declining market issue and how FNMA may approve the loan @ 95% but getting a MI company to insure it was impossible in FL.
Point #2
Tom-
As Jeff stated correctly in a later post, Mortgagee Letter 2008-16 stated that the UFMIP would range from 1.25%-2.00% depending on the credit score. Mortgagee Letter 2008-16 was rescinded in its entirety by Mortgagee Letter 2008-22 which left the UFMIP at 1.75% acroos the board. However, it goes on to state that the ML 08-16 is only recscinded until Sept. 2009. At which time the risk based scoring model will come back into play. Again here's the problem with my comment. You three are blinded by your overwhelming need to protect your correctness that you have become to literal. My error was that I said it as a statement of fact, which it is not, instead of a opinionated comment.
The bottom line on this matter is in my opinion, which is what blogging was intended for, the likelihood that UFMIP will reach 2% as the "standard" by this time next year is all but certain. The financial losses that the FHA program will suffer over the 18-24 months will be staggering and unfathomable. Nothing like we have ever seen. To offset the risk HUD will have to increase the fee just to retain a market share which is all this damn industry is about anymore anyway! USDA & VA are both have a higher fee that FHA and have not experienced the fallout as a result of that fee. How long before HUD gets a clue and matches them?
Forgive me for seeing the light at the end of the tunnel and understanding the financial ramifications of HUD's actions today. Forgive me that I cannot detail everything that I see in a written manner where all can understand.
Mark my words all you loyal readers of this saga, bookmark this, print it out, whatever just remember what I said about UFMIP.
Thank you all for your comments and to my new "professional" adversary Jeff. Jeff, you can find me and some other stupid opinions of mine on the cover of Broker Magazine's Sept. 2008 issue as well as their feature article in last year's August 2007 spread. If you need my stupid opinions from the real estate side of things, since I cannot posssibly be able to be good at two cojoined industries, you can look up last year's Florida Association of Realtors conference transcripts in Orlando, FL. Finally, you can look for me in the coming month's to a city near you speaking about the CCIM designation. But then again that is the commercial real estate world which far below Tom & Gerry and the FHA Messiah Jeff.
A final comment before I ever visit/respond to anything on this blog again, may God continue to bless all your businesses in 2009. Remember the same measure by which you judge others, it will be applied to you. God Bless.
I still need to come back to address the other comments, but I need to address Jay again...
JAY.... . what's sad is not only did you call me out from the get go, but now you mock me because I have over-looked some things. I have not overlooked anything. You still have not addressed the main issue, in regards to what the pricing hits for a conventional loan at % down with a 659 credit score. Not once did you even say that you can't do a 5% down because of the MI companies in Florida. Not until Gerry actually brought it up. Besides, this post was not about Florida. It was a comparison, if it can be done in that state. Yes, my comments have not been politically correct, because you failed to address my main topics specifically with proof and not just babble.
In regards to the UFMIP... that is your assumption. FHA or HUD never said what it would go to if they did change anything. And again, you have your dates all wrong. I can prove it and have. It's in Mortgagee Letter 2008-22. The new UFMIP of 1.75% was in effect as of October 1, 2008. It has been rescinded after Sept. 30th, 2008. SO I have no idea why even bring up Mortgagee Letter 2008-16. Again, you have prooven a lack of knowledge and that being both a realtor and a loan officer at the same time shows that you can't do both. Sorry, but these are the facts based on your comments. Getting back to your FHA assumptions, HUD states that it will revisit these changes every September. That is it... it doesn't tell us what the changes are or will be.
Overall, I am damn good at what I know. And Tom and Gerry seem to know what they are talking about. I never met Tom or Gerry. Tom is a loan officer from Dallas, Tx and Gerry is a loan officer in Florida. You even made a statement that you validated your info. Bingo, my point prooven again. Apparently the other person that you talked to doesn't know what they are talking about. And I will actually be writing a blog about this, titled, 'Two wrongs don't make a right'...
Again, you still can't answer my main question about the pricing hits... you get rates sheets that tell you these pricing hits for all states. Forget about Florida. Your first main argument was that my pricing was way off, that I was wrong. Now you come in here and say that it doesn't matter, because you can't do 5% down in Florida for a conventional loan. No crap... but which is it Jay? Yes, I will sound mean in my comments, because people need to be educated, not misled as you have done on many cases, and still never backed any of your comments up. After 4 comments, you still haven't directly answered my responses. What does that tell anyone? That you are actually wrong and have no idea what you are talking about. I do feel sorry for your clients Jay, I really do.
Lastly, you now mock Tom, Gerry, and myself... but I have not seen one person in this thread actually validate you. And you can't count two other people that hide behind false names and no links. For all I know, it could be you... or a few AR members that actually despise me. But you know why Jay? Because I educated people with the facts and if it's my opinion, I make mention of it in my blogs. And yes, I will say this again, I am not politically correct in my statements, because I have semi attacked you. But you gave me no choice. You tried making me look bad, yet you could show no proof... and now your story has changed. Gee, sounds like some of our politicians.
Anyhoo.... go about and find someone else to attack. But please stop spreading misleading information, unless you can back it up. The mortgage mess is bad enough out there..
Jeff,
My adjustment is 1.5 on a 95% deal with a 659 FICO(real easy to answer for a 1st year loan officer)
Maybe Jay still funds thru fantasylandmortgage.com <= which I thought went out of business.
Did Jay ever tell you what his adjustments are?
I still wonder whether Jay is better at lending or real estate.... but it doesn't keep me up at night.
STARLING.... . thank you for the very polite compliments. Just a FYI though, I wrote this post about the new down payment changes. 2009 new FHA down payment changes... I don't think I mentioned credit scores, but yes, FHA now has credit scores. They even did before the new down payment changes. It says that you can't have below a 500 unless you have 10% down. So the old days of no credit scores even with HUD are gone. thanks
RANDY.... . of course not, that many lenders in your area weren't doing FHA loans. It was to expensive to be FHA approved and it still wasn't hard to get someone a conventional loan. Even if FHA might have been a better option. And if they couldn't do VA, they would put them into a conventional loan, when maybe at times FHA woud still be better.
I once had 2 different loan officers tell a client of mine that conventional was better for her with 10% down. It wasn't true, I even did the numbers just as I did here. But they both told her the same thing. But, they never showed her the numbers.. but I did. And after doing some research, I found out that one of the lenders wasn't even VA approved... wow, imagine that.
DANIEL..... . glad to see you come back to defend your weak comment. Calling me a liar, but not able to defend your statement with proof? Sad, and one of the reasons why we are in the mess that we are today. Loan officers like yourself that don't know what they are doing. Sorry if this is rude, but please leave the business.
CHRIS>..... . yes, those that didn't have FHA and used subprime as their back up hurt us some as a country. And even more so, those that were FHA approved, but still took borrowers subprime because it was easier. And I know this from working with 2 loan officers that did this and from speaking to loan officers after work.
ROBERT..... . bingo, just as I mentioned in this post. It's kind of sad that Jay and Daniel didn't agree at all. Not looking for people to always agree with me. If you disagree, hey,I can take it. But be able to back it up with facts and not opinions. They couldn't do this and I don't see them coming back into this whole thing. Sad...
KATHY.... . thank you very much for the compliment and for featuring my post. I'll take a look.. thanks
LUCIEN..... . not to sound rude, but I really would agree with to many people unless you know the guidelines and what you are talking about. As stated, you have to have MIP for 5 years, no matter how much you put down. And it falls off at the 78% LTV level. thanks
Amazing how many 'professionals' can read this post and jump to wrong conclusions.
That was me Jeff.... I didn't realize I wasn't logged in....
Jeff, you are correct in pointing out that many subprime originations should have been FHA loans! I blame FHA for this. It is much harder for a mortgage broker to get FHA ceritified than it is to get approved by a conventional lender, and so many mortgage originators did not have access to FHA! And this is in spite of the fact that Originators can make more money on FHA! Once again, your governmnet at work!
Hi Jeff,
This is a great statement: "The realization has been that 30% of the subprime mortgages in the last 5 years previous to the last 2 years should have been FHA mortgages, not subprime."
I completely agree with this statement and I don't doubt that it is true.
I am not a lender, bot for whatever reason, FHA seems to have been the red-headed step child when in fact it is perhaps the greatest and most credible resource for first time home buyers.
Hi, I am thinking of refinancing my mortgage using the FHA loan and as you mentioned I'll be paying 1.75% as the fees for that. Can I show this fee amount while doing my federal tax filing?
JOSEPH.... please e-mail me and I can answer some of your questions.... jbelonger@ihmci.com
thanks, jeff
Hey, thanks for the great post. Its always good to see a comparison side by side of the different loan products.
I enjoy reading your blogs.
Do you have an updated chart with current rates? That might be useful to post.