I used to blog quite often about how advantageous FHA loans are for a variety of reasons – In Defense of FHA/Misconceptions Persist.
The reasons include: 1. Rates much lower than Fannie Mae rates; 2. Fast closes – only 14 calendar days; 3. Don’t need clear pest inspections; 4. Can get large lender credits for closing costs; 5. Underwriting is very flexible; and 6. Only 3.5% down.
Long story short: FHA financing has a very undeserved stigma, as it is often the best financing option for borrowers with weaker credit or limited cash; it is much less work and easier to qualify for, and the rates are lower.
FHA’s big drawback though is the Mortgage Insurance Premium – with an up-front fee of 1.75% of the loan amount, and a monthly fee of 0.85% (in most cases).
BUT – FHA JUST LOWERED ITS MONTHLY MORTGAGE INSURANCE PREMIUM REQUIREMENT BY 30 BASIS POINTS – FROM 0.85% to 0.55%! AND JVM CAN LOCK CLIENTS IN WITH LOWER PREMIUMS TODAY!
For most other lenders, the change will not take place until March 20th.
To be clear, this change is a pure subsidy that benefits buyers in the market now, and it benefits all of us in the mortgage and real estate industries.
BUT – because it is a government sponsored subsidy, like all subsidies, it will result in higher home prices for homebuyers who are not in the market now.
It also creates more risk for the FHA (that guarantees all the loans), as buyers with smaller down payments are the most likely to default – so the higher MIP rate was probably justified to cover the necessary cost of insurance for those loans.
But – be that as it may, we fully intend to take advantage of this excellent financing option, and why clients need to take advantage of it sooner rather than later.
Loan Limits
Amazingly, FHA’s loan limits are as high as $1,089,000 in CA – making it a very enticing option for even high-end borrowers.
The loan limits are much lower in Texas though – limited to $472,030 for most counties.
FHA Vs. Fannie Mae
FHA used to kick the snot out of Fannie Mae in a head-to-head battle for low-down payment borrowers.
BUT – Fannie had a slight leg up for a few months after it started to waive all of the “hits” to rates (for FICO, low down payment, condo, etc.) for first-time homebuyers.
Now that FHA has lowered its MIP, FHA has a clear edge once again because it offers much lower rates too.
We did a rate comparison for a borrower yesterday, and the FHA rate was 3/4% lower than the Fannie Mae rate for a borrower putting 5% down.
Keep in mind too that FHA tends to condition borrowers less as well.
Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
