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Question for mortgage people here.....I am attempting to purchase a home. I found a lender I'd like to use (my credit union) and she told me that all of their loans are FHA. Now from what I've read, these loans are typically for people who have less than 20% down.
I am putting over 50% down, have great credit and was told by lender that my loan would be a slam dunk.
Why are FHA loans viewed by sellers as not as desirable or that their may be problems associated with them. When I've mentioned my loan would be FHA I feel as though I am being looked at as a risk that may not make it to close.
Why is a conventional more desirable to a seller than FHA? Any clarification would be much appreciated.
Generally FHA has a higher interest rate. Also MI is mandatory with FHA regardless of the LTV, so you are paying costs you wouldn't have to with a conventional loan.
I'd shop around, you'll likely get a better deal elsewhere.
FHA requires PMI? Even with over 50% down? I am going to have to ask a few more questions. The rate was pretty competitive (and with the amount I'm financing the difference was negligible) but the closing costs were MUCH better.
Question for mortgage people here.....I am attempting to purchase a home. I found a lender I'd like to use (my credit union) and she told me that all of their loans are FHA. Now from what I've read, these loans are typically for people who have less than 20% down.
I am putting over 50% down, have great credit and was told by lender that my loan would be a slam dunk.
Why are FHA loans viewed by sellers as not as desirable or that their may be problems associated with them. When I've mentioned my loan would be FHA I feel as though I am being looked at as a risk that may not make it to close.
Why is a conventional more desirable to a seller than FHA? Any clarification would be much appreciated.
It would be VERY odd that a lender only offer FHA and with that kind of down payment you definitely DO NOT want to go FHA.
Pro's: FHA has more leeway for credit conditions -- more leeway -- not easier. There are certain items you are allowed/not allowed to pay...therefore seller has to p/up. That could be the reason for the looks.
Con's: FHA has MI.
W/ 50% down you DO NOT WANT TO GO FHA. Depending on your area, FHA could be very competitive w/ conventional, but usually is more like .375-.500 difference in rate. W/ a FHA loan you have to escrow. W/ a conventional you do not. It sounds like you are great w/ your finances. You can save the money that would be put into an escrow account and make your own interest on it, and pay your taxes at the end of the year. This way your payment also does not fluctuate and you are never surprised w/ "shortages".
There is virtually no reason to go FHA if you can qualify for a conventional loan. The rates are generally similar, but FHA has MI no matter the LTV and it only goes away after 5 years, so that's a .50% per year for 5 years for nothing. Plus FHA will have a UFMIP, which is a big premium payment that goes to the FHA insurance fund to pay for the people who default because they are putting 3.5% down. Why would you want to pay for that (it's 1.75%) when you have 50% down.
If your CU can't do a conventional loan (really, really strange), then shop around. You are getting hosed if you stay there.
Last edited by AndrewSoss; 06-06-2009 at 09:10 PM..
Reason: edited to correct MI guideline
There is virtually no reason to go FHA if you can qualify for a conventional loan. The rates are generally similar, but FHA has MI no matter the LTV and it only goes away after 5 years, so that's a .50% per year for 5 years for nothing. Plus FHA will have a UFMIP, which is a big premium payment that goes to the FHA insurance fund to pay for the people who default because they are putting 3.5% down. Why would you want to pay for that (it's 1.75%) when you have 50% down.
If your CU can't do a conventional loan (really, really strange), then shop around. You are getting hosed if you stay there.
Thanks for all the info. I'm going to call her tomorrow. Is MI (Mortgage Insurance?) What is UFMIP? I have all the truth in lending paperwork outlining all the potential closing costs and none of this stuff came up. Is is possible they just follow the FHA guidelines and it is not a true FHA loan? Although I am 99% positive she said all of their loans are FHA. I will get this all straightened out but the closing costs were really cheap.
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Originally Posted by tryin2buy
Thanks for all the info. I'm going to call her tomorrow. Is MI (Mortgage Insurance?) What is UFMIP? I have all the truth in lending paperwork outlining all the potential closing costs and none of this stuff came up. Is is possible they just follow the FHA guidelines and it is not a true FHA loan? Although I am 99% positive she said all of their loans are FHA. I will get this all straightened out but the closing costs were really cheap.
FHA has MMI, or monthly mortgage insurance (different from private mortgage insurance as it is federally insured). This is paid monthly and as Andrew said regardless of loan to value you are required to carry MMI for a minimum of 5 years (or until loan to value is paid down to 78% based on original purchase price which in your case is not applicable). The UFMIP is the upfront mortgage insurance premium and the reason it may not have shown up as an out of pocket expense is most times the UFMIP is rolled into the loan amount (it does not affect loan to value calculations for the purpose of underwriting the mortgage). As has been said before, it makes zero sense to go with an FHA loan with a substantial down payment unless you have credit issues or there are other factors that may affect qualifying for a conventional mortgage like multiple lines of work in the last 2 years.
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