Will FHA Loans Become The Dominant Loan Products???

As American economy is starting to reach the bottom this is automatically effecting all industries. Gas is expensive as hell so people in the transportation industry who don't have a union and didn't get raises are very pissed off. The Real Estate Market has reached, pretty much all time lows and Foreclosure rates are just (negatively) amazing. This is obviously pissing off people in the Real Estate industry and people who are trying to sell a home!!! Many people lost jobs and many are being forced into different industries. People are not spending money, because they don't have any!!! So, as the American government has allowed for America to hit (pretty much) the ground and on top of that allowing for the Euro to be kicking the Dollar's ass, one good thing that the government still offers to its citizens and residents is the FHA loan.

FHA loan is a government backed loan to the banks (lenders) allowing them to charge a smaller interest rate and FHA guidelines are a lot looser than conventional (conforming) loans. FHA is not really Credit Score driven and is more oriented towards the borrower's credit history. The most important factor for the borrower is not having more than 2x30 day late payment on their credit accounts. The beauty of FHA is that even if you have a poor credit score and good credit history you can still get a prime rate.

The Main difference between FHA loans and Conventional loans is the following.

• FHA loans require an upfront 1.5% of the loan amount to be paid at closing. Conventional loans don't require this.
• FHA charges the borrower .5% of the loan amount every year. If the borrower's LTV (loan to value) or CLTV (combined loan to value) is less than 80% the borrower does not pay a premium with a conventional loan.
  
• With a conventional loan you need at least 5% down payment. FHA only requires 3% down payment.
• Most FHA loan are assumable. Assumable means that when you sell your home the buyer can take over the payment on the existing loan. This is excellent if you want to later on give the house to your kids. Most conventional loans are not assumable.
  

Scenario (600 credit score, good credit history[no more than 2x30 late payments):

Sales price 200,000

FHA Loan (30yr Fix)

• 3% Down (6000) New Loan Amount: 194,000
  
• 6% Interest Rate (Monthly payment 1163.13 +(.5%premium/12) 80 = 1243.13 + tax and insurance
• Closing cost should not be more than 4000 + (down payment) 6000 = total money at closing table = 10,000

Conventional Loan (30yr fix)

• 5% Down (10,000) New Loan Amount 190,000
• 7.75% (very realistic even too good for 600 credit score) (Monthly payment 1389.84 + (pmi) 80 = 1469.84 + tax and insurance.
• Once the borrower has more than 20% equity in home or when they owe less than 80% of loan amount no pmi (private mortgage insurance) new payment 1389.84 + tax and insurance.
• Closing cost should be no more than 3000 + 10,000 down payment = 13,000 at closing table.

So don't think that you know everything and once in a while listen to your mortgage broker. Believe it or not there not that many bad ones out there as all are either in jail or lost their licences. Thank you for reading.