Is An FHA Mortgage Better Than A Conforming One?

The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures one-quarter. "Going FHA" is more common than ever before -- but is it better?

The answer -- like most things in mortgage -- depends on your circumstance.

Like its conforming counterpart, an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate one. Payments are made monthly and come without prepayment penalties.

That's where the similarities end, however, and decision-making begins. For homeowners and buyers across Raleigh , FHA mortgages carry a different set rules as compared to conforming loans through Fannie Mae or Freddie Mac that can render them more -- or less -- attractive for financing.

For example:

• FHA mortgages can be assumed by a subsequent buyer. Conforming loans may not.
• FHA mortgages require mortgage insurance, regardless of downpayment. Conforming loans do not.
• FHA mortgages do not have loan-level pricing adjustment. Conforming loans do.

FHA mortgages also require smaller downpayment requirements versus a comparable conforming mortgage. FHA calls for a minimum downpayment of 3.5%. Conforming mortgages often require 5 percent or more.

And, lastly, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been below the average conforming mortgage rate more than 50% of the time, meaning that an FHA mortgage's principal + interest payment is lower than a comparable Fannie/Freddie loan.

Today, conforming mortgage rates are lower.

So, which is better -- FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today's market interest rates and study the results.

With less than 20% equity, the answer is often clear.

Get Your Applications In : FHA Mortgage Insurance Premiums Rising 0.25 Percent April 18, 2011

After this week ends, the FHA is raising mortgage insurance premiums on its new Apex borrowers. It's the FHA's third such increase in the last 12 months.

Beginning with FHA Case Numbers assigned April 18, 2011, mortgage insurance premiums will be higher by 25 basis points per year, or 0.25%.

Against a $200,000 loan size, the MIP increase adds $500 to an FHA-insured borrower's annual cost of homeownership. All new FHA loans are subject to the increase -- purchases and refinances.

Existing FHA-insured homeowners across North Carolina are unaffected. Premiums do not rise for loans already made.

The FHA is increasing its mortgage insurance rates because, as a group, the FHA is insuring a much larger percentage of the U.S. housing market. 

In 2006, the FHA held a 4 percent market share. By 2010, that share ballooned to 19 percent and, today, it's estimated to be even higher.

In its official statement, the FHA says that the quarter-point MIP bump will "significantly strengthen" its reserves which are depleted because of delinquencies and defaults. By law, the FHA's capital reserves must meet certain levels. 

Therefore, to meet these requirements, the FHA is rolling out its new mortgage insurance premium schedule:

• 15-year loan term, loan-to-value > 90% : 0.50% MIP per year
• 15-year loan term, loan-to-value <= 90% : 0.25% MIP per year
• 30-year loan term, loan-to-value > 95% : 1.15% MIP per year
• 30-year loan term, loan-to-value <= 95% : 1.10% MIP per year

In order to calculate what your FHA monthly mortgage insurance premium would be, multiply your beginning loan size by your insurance premium in the chart above, then divide by 12. 

The FHA also charges a 1 percent, up-front mortgage insurance premium at closing. That figure remains unchanged.

FHA Streamline Refi Changes : No Income, No Job Required

FHA Streamline Refinance guidelines are changing. For the better.

In an effort to improve its loan portfolio, the FHA is loosening approval standards on its popular refinance program, rendering large groups of homeowners suddenly FHA Streamline-eligible.

Now, that may seem counter-intuitive -- lowering qualification standards in order to reduce loan defaults -- but in the FHA's case, it makes complete sense. It's because the FHA doesn't make loans. It insures them. What's good for FHA-insured homeowners is good for the FHA, therefore.

All things equal, lower housing payments for its insured homeowners should correlate to fewer FHA loan defaults in North Carolina and nationwide.

One interesting facet of the FHA's new rulebook is the manner in which the government group is applying common sense to the approval process. So long as the homeowner is current on their mortgage and there's a demonstrable benefit in the refinance, the FHA reasons, there's good reason to insure the new loan.

The FHA defines "current on the mortgage" as being up-to-date on payments, and having zero 30-, 60-, or 90-day lates within the last 12 months. Demonstrating benefit is a little more tricky.

According the FHA, "benefit" is defined by refinance type.

When refinancing any fixed rate mortgage, or an existing ARM to a new ARM, the borrower's new monthly (principal + interest) + (mortgage insurance premium) must be 5% or more below the current levels to meet the FHA's minimum benefit requirements.

The refinance of any ARM to a fixed rate mortgage is considered an acceptable benefit.

Beyond that, Streamline Refinance guidelines are simple:

• Income is not verified, or required
• Employment is not verified, or required
• Assets are not verified, unless required to meet closing costs

Note that an appraisal is not required, either This allows "underwater" homeowners to refinance their FHA-insured home loan without penalty. The downside is that without an appraisal, the new loan size may not exceed the current principal balance plus the FHA's 1% upfront mortgage premium. All other charges must be paid as cash at closing.

The FHA Streamline program is a refinance program special to FHA-insured homeowners. To confirm your own eligibility, check with the Herbert & Hammond Team.

FHA : Monthly Mortgage Insurance Premiums To Rise April 18, 2011

For the third time in 12 months, the FHA is changing its mortgage insurance costs. 

Effective for all FHA case numbers assigned on, or after, April 18, 2011, annual mortgage insurance premiums (MIP) will increase 25 basis points.

The change will add $250 to an FHA-insured homeowner's annual loan costs per $100,000 borrowed, and applies to all borrower's equally. Current FHA borrowers are unaffected.

To understand the FHA is to understand why premiums are rising.

As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. According to its own records, the FHA's percentage of purchase money business in North Carolina and nationwide expanded from 4 percent in FY 2006 to 19 percent in FY 2010.

Rapid growth like this has strained the FHA's capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will "significantly strengthen" its reserves. By law, the FHA must maintain a certain minimum level of reserves.

FHA mortgage insurance varies by loan term, and by loan-to-value and, beginning April 18, 2011, the new insurance premiums are as follows:

• 15-year loan term, loan-to-value > 90% : 0.50% per year
• 15-year loan term, loan-to-value <= 90% : 0.25% per year
• 30-year loan term, loan-to-value > 95% : 1.15% per year
• 30-year loan term, loan-to-value <= 95% : 1.10% per year

To calculate your monthly mortgage insurance premium, multiply your starting loan size by your insurance premium, and divide by 12. 

There is no change planned to the 1 percent upfront mortgage insurance premium charged by the FHA.