Posted November 9, 2009Tweet
It's an interesting development, especially for homeowners and home buyers with low equity.
Unless you've got 20 percent into a property, if you're locking a 30-year fixed rate mortgage, there's compelling reasons to go FHA.
The first reason to choose FHA is an obvious one -- mortgage rates are lower. Right now, there's 1/8 percent difference between the comparable FHA and conventional 30-year fixed products and, over 30 years on a mortgage, that can really add up.
The second reason why FHA may be better than conventional right now is that FHA mortgage insurance premiums are lower versus the private insurance offered through Fannie or Freddie.
On a 10-percent-down home loan for applicants with A-plus credentials, FHA insurance ends up being cheaper by 0.34% per year.
Assuming a $200,000 mortgage, that's $680 per year and for people with FICOs under 740, the savings get substantially bigger.
Despite these two reasons, however, when it comes to mortgages, we have to remember that it's not always about rate. Costs matter, too. FHA mortgages may be cheaper than conventional loans on an on-going basis, but they're rarely cheaper at the outset.
This is because FHA mortgage carry mandatory, up-front closing costs. On streamline refis, the fee is 1.5 percent FHA fee; on purchase and regular refis, it's 1.75 percent; on "delinquent" mortgages, it's 3.0 percent.
Homeowners torn between FHA and conventional may find FHA "rate-attractive" but cost-prohibitive. The math will vary from home-to-home, and homeowner-to-homeowner. Given the FHA's low rates, however, the program at least warrants some consideration.
To see how the math compares on your home, or pending home purchase, click to here to get a rate quote.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.