What can you tell me about FHA loans?

[LynneSin]

I just went through the pre-approval process for a home loan although I'm really just in the 'looking' stage but could buy if the right property comes along. The loan is actually through my place of business (I work for a major bank) and I'm getting a lower rate without having to pay for any points.

I've had credit challenges throughout life and I'm paying off some credit card debt (less than $4k) so I about passed out when she said I was qualified for a loan. I'm definite for an FHA loan but she said if I held out about 6 months I could probably increase my FICO score to get me into a Conventional Loan (although she thinks she could swing it now since I have some money that I'm using to help buy the house). The rate would be the same whether it's FICo or Coventional.

So what's the deal with FHA other than the house has to pass an inspection before I can buy it and I don't need to put as much money down.

[mopinko]

1. we bought our house with it

the only drawback that i saw was some funny business with pmi. we got a refund on that when we re-fi'd. it is a great way to get started on the lovely road of home ownership. pre-approval doesn't really mean crap, tho. maybe they did a little better job on you, since you work at the bank. but usually it just means that things add up, you make enough money, etc. i would get a look at your credit reports, so that is there are errors you can fix them now.

[LynneSin]

2. She pulled a credit report for the pre-approval

There's one bad thing on it from a doctor I use to see like 3 years ago. To be honest, I'm not sure for what and I never thought I had an outstanding balance with them so that thing is getting cleared up immediately and we're going to attach something to the credit reports to explain that I had no idea about an outstanding issue. I'd dispute it but it's like 3 years old and really not that much money.

[fairfaxvadem]

3. In reality, no difference.

They are traded and sold in bundles of mortgage-backed securities just like conventional loans. But as they are technically "underwritten" by the govt as a program to help first time homebuyers, they come with a few features that Conv loans don't, although in many ways those differences have narrowed also.

Lower downpayment, more "flexible" lending criteria, do have to pay the FHA Mortgage Insurance Premium, used to be part loaded upfront and then a monthly fee. Used to be if you refi'd or sold within 3 years or so, you would get a small refund.

Condos usually have to be "approved", which would have occurred during construction and it is rare to find condo units that AREN'T on the approved list, etc., depending on where you live.

It's a great deal. Rates are also usually competitive. Just a lower limit on the max you can borrow, at least it used to be lower.

I've been out of the biz for a while but if you find a house and all things being equal you do an FHA, it's fine. My first was an FHA.

Good luck! It's nervewracking but worth it.

[nosmokes]

4. more paperwork.

you'll be signing your name in your in your sleep with the FHA loan. it may have changed, the house i bought FHA was almost 20 years ago, and i bought the house from a dead person, so that may have something to do with the inordinate amount of paperwork as well. but i swear, the paperwork from all the properties i've bought and sold since then combined don't add up to what i went through with that one.

and congratulations!

[GOPisEvil]

5. Here's some information.

http://www.fhainfo.com/fhavsconventional.htm

Oh, even if you don't go with FHA, please get the house inspected. It will save you in the long run.

I'm so excited you're thinking about buying. If I can manage it, you can!

[GOPisEvil]

7. Ask about programs for first-time buyers.

I was in one called The Genesis Program. I think that's a Bank of America program. Anyway, people who participate and jump through the hoops qualify for a lower interest rate, and don't have to pay mortgage insurance. It's a great deal.

Ask your mortgage broker about any programs like this. It can save you money!

[bratcatinok]

6. I was in mortgage banking for 23 years before I became

disabled in 2000. My information may be somewhat outdated because there were changes going on in the FHA program when I retired. The changes had mainly to do with the dollar amount of FHA insurance and the fees that could be charged at closing along with some underwriting changes.

FHA loans are guaranteed by the government in case of default. On an FHA loan you will be charged a set rate for mortgage insurance called MIP. Mortgage insurance insures the lender in case of default by the buyer. It does not insure you in any way.

As an example, (from when I was actively working)FHA insurance would be 3.8% of your loan amount on a 30 year loan. It would be financed into your loan amount. So if you were to find a house for 106,000.00 and put down 6,000 as your down payment, you'd have a loan amount of 100,000.00. After adding 3800.00 for the insurance to your loan amount, you'd be borrowing 103,800.00. Because the insurance is added to your loan it isn't refundable. Right now I can't remember but I think there is also a small monthly payment for mortgage insurance.

It used to be that FHA loans were great for first time homebuyers because the down payment requirement and qualifying (as in ratios) was less than for a conventional loan. With new conventional loan products being introduced over the last few years, that may not be necessarily true anymore.

Conventional loans will also have mortgage insurance if you put down less than 20%. The amount will vary depending on how much of a down payment you make. Typically mortgage insurance on conventional loans is paid monthly and is higher than the monthly you pay on FHA loans.

With a conventional loan you can request mortgage insurance be waived once you have paid down the loan enough to have 20% invested in the property. Also, if the property has increased in value due to market prices and you have 20% equity, you can request PMI be waived. The lender can request a new appraisal to make sure of the 20% equity. You must also have not been late on any payments.

One good thing I'll say about FHA loans is about the appraisal process. There are certain things the FHA appraisers look for that appraisers of conventional loan properties don't. Mrs. Grumpy is an appraiser and she may have more information about FHA vs conventional appraisals. Back when I was working, appraisers had to be approved to do FHA appraisals.

If all of this is clear as mud and if you have questions about anything I've said, let me know and I'll do my best to explain.