EDITORS NOTE 2/3/2015: Since writing this post, HUD has reduced mortgage insurance premiums (yay!) and loan limits have changed. Part of the fun of writing (and reading) a mortgage blog is that guidelines and programs change constantly. Reader beware. 🙂
When Washington state home buyers and home owners request a mortgage rate quote from me, they have many options, including FHA or conventional financing. Over recent years, conventional financing has become a more popular mortgage than FHA, despite FHA’s lower down payment requirements.
What’s not so hot about FHA?
- FHA mortgage insurance has become very expensive compared to conventional private mortgage insurance premiums. Even though FHA has had lower mortgage rates than conventional mortgages, the mortgage insurance is so much higher that it the mortgage payments for an FHA mortgage are often higher than conventional.
- FHA mortgages have mortgage insurance regardless of how much down payment or equity the home has.
- Unlike conventional mortgages, FHA mortgage insurance will essentially remain for the life of the loan. The home owner with an FHA mortgage can eventually refinance into a conventional mortgage to dump the expensive FHA mortgage insurance.
What’s good about an FHA mortgage?
- FHA allows for lower down payment for high balance loans than conventional. In the greater Seattle – King County area, this impacts loan amounts from $417,001 to $506,000 for a single family dwelling.
- FHA mortgages can be more forgiving to borrowers with shallow credit or lower credit scores.
- FHA mortgages have a shorter wait period than conventional mortgages for home buyers who have had a foreclosure or short sale.
- If you are paying alimony, FHA mortgages allow the alimony to be deducted from the gross monthly income instead of treating it like a debt. (This can dramatically impact how much a borrower qualifies for).
- FHA allows for a much lower down payment for owner occupied mortgages on 2-4 unit homes.
- FHA streamline refinances are available without appraisals being required.
- FHA mortgages may be assumable to a qualified home buyer when you are ready to sell your home.
FHA used to be the “go to” for many first time home buyers. However, with the down payment assistance programs available, home buyers who need help with funds for down payment or closing cost now have other options. And home buyers who have gift funds available for down payment have more conventional options as well.
Bottom line, it’s important to know what your available options are. If I can help you with your home mortgage for a purchase or refinance on homes located anywhere in Washington state, please contact me.