FHA vs Conventional Home Buyers

It is a very competitive market for home buyers in the greater Seattle area. I’m finding that many of my clients who are using FHA for financing are not feeling the love from home sellers. It’s not unusual for home sellers, or more likely their Listing Agent, to steer away from FHA offers when a conventional offer is in hand.

In my opinion, this is largely due to an old bad reputation for FHA as being a tougher loan and/or that it would be more likely to have appraisal issues. If we are comparing a minimum down payment FHA to a minimum down convention mortgage, then this really isn’t an accurate view. If anything, with a minimum down scenario, FHA mortgages are more flexible than conventional mortgages and probably have higher odds of closing.

Appraisals for an FHA or conventional mortgage in today’s market are essentially the same.

So why would a home buyer opt for an FHA mortgage over conventional?

  • Minimum down payment conventional programs, like Fannie Mae’s HomeReady or Freddie Mac’s Home Possible, have income limits based on geographic areas (some areas do not have the income limits for HomeReady).  Depending on where the home is located, FHA may be better for certain borrowers.
  • FHA allows alimony to be treated more favorably than conventional mortgages.
  • FHA has had lower interest rates than conventional mortgage lately. This may be offset by mortgage insurance…. (click here for a mortgage rate quote – for homes located in Washington state only).
  • FHA has lower down payment options than conventional when a buyer is considering a 2-4 plex as their primary residence.
  • Conventional mortgages have a much larger range for what mortgage insurance will cost based on credit scores. Home buyers who are doing minimum down payments  with a conventional mortgage could (currently) see rates ranging anywhere from 0.44% for excellent credit (740+) to 2.25% for lower credit scores (620-639). FHA’s annual mortgage insurance premium (paid monthly) is not credit score driven and is currently 0.85% for a minimum down 30 year fixed mortgage. Of course FHA also has upfront mortgage insurance which is financed into the mortgage.
  • FHA has a shorter wait period for short sales and foreclosures than conventional mortgages.

If you’re selling a home or are a listing agent, I highly recommend that you reach out to the Loan Officers who are working with the buyers on the offers to give them a sniff. The lender may make more of a difference in how smoothly your transactions is than the actual program when you’re comparing minimum down conventional to FHA.

If you’re considering buying or refinancing a home located anywhere in the state of Washington, I’m happy to help you.

Dr. Carson sworn in as new HUD Secretary

Yesterday, Dr. Ben Carson was formally sworn in as the Secretary of HUD. Secretary Carson, from HUD’s press release, stated:

“”I am immensely grateful and deeply humbled to take on such an important role in service to the American people,” said Secretary Carson. “Working directly with patients and their families for many years taught me that there is a deep relationship between health and housing. I learned that it’s difficult for a child to realize their dreams if he or she doesn’t have a proper place to live, and I’ve seen firsthand how poor housing conditions can rob a person of their potential. I am excited to roll up my sleeves and to get to work.” [Read more…]

BREAKING NEWS: FHA Mortgage Insurance reduction SUSPENDED INDEFINITELY

As President Trump’s inauguration ceremony is in process, HUD has suspended the reduction of the annual FHA mortgage insurance indefinitely.  Mortgage Letter 2017-07 cancels Mortgage Letter 2017-01, issued by HUD just 9 days ago. [Read more…]

Will the recent FHA Mortgage Insurance Reduction be Trumped?

HUD Secretary Castro proudly announced the reduction of FHA’s annual mortgage insurance premium just a week ago as his parting gift of tenure before having to leave his position. There has been a lot of discussion on if this will be an action that Trump’s new administration will roll back. [Read more…]

HUD’s reducing Mortgage Insurance on FHA Mortgages

iStock-000018668640XSmallUPDATE January 20, 2016: HUD has suspended the reduction to FHA mortgage insurance effective immediately.

HUD has announced today that mortgage insurance will be reduced on most FHA mortgages. FHA mortgages have two types of “mortgage insurance” the borrowers pay regardless of loan to value. There is the upfront mortgage insurance (currently 1.75% of the loan amount) that is typically added to the base loan amount and financed over the life of the loan and there is the annual mortgage insurance that is actually paid as part of the monthly mortgage payment. This reduction of 25 basis points is on the annual mortgage insurance premium.

[Read more…]

2017 FHA Loan Limits for Washington State

iStock-000018668640XSmallHUD has just announced FHA loan limits for 2017. Loan amounts were increased for all Washington counties EXCEPT for Chelan, Callam, Douglas, Jefferson, San Juan and Skagit which have the same FHA loan limits as 2016.

Loan limits for 2017 are in effect with FHA case numbers issued in 2017.

[Read more…]

BREAKING NEWS: 2017 FHA Loan Limits increased for Greater Seattle area

HUD has updated their website with the 2017 loan limits for FHA mortgages. King, Pierce and Snohomish counties will match the 2017 conforming high balance loan limits. FHA loan limits are effective with CASE NUMBERS issued in 2017. [Read more…]

FHA revises guidelines for calculating student loans

mortgageporter_student_loansTonight HUD announced that they are backing off how they have been treating student loan debts for people who are trying to qualify for a mortgage.

From HUD’s announcement:

“…FHA believes that its approach provides the appropriate balance between expanding access to credit and ensuring that the borrower is able to maintain successful, long-term homeownership.

[Read more…]