What many people don’t realize is the FHA loan can be a great refinance loan.  Starting around 2008, the appraised values of properties in the U.S. started to fall nationwide.  When the interest rates dropped due to the economic situation and government intervention, many rushed to refinance their homes.  Unfortunately, many found their homes had dropped in value to a level that exceeded the guidelines allowed for a Conventional refinance.  However, many that had an existing FHA loan qualified for the Streamline Refinance program and were able to refinance to the lower rates.  And for many of those that did not qualify under Conventional guidelines, an FHA loan allowed them to benefit from the lower rates as well. 

The key is you need to have your available options presented to you side-by-side so you can make an informed decision.  Don’t rely on hearsay and rules of thumb when you are making large financial decisions.  Take time to look at the numbers and work with someone you trust that will explain them to your satisfaction, then make the best choice for your personal situation.  Churchill Mortgage would be happy to assist you in this process. Contact one of our Home Loan Specialist at 1-888-562-6200 or Request A Call Back on our website www.churchillmortgage.com and we will contact you at a time that is convenient for you.

The Federal Housing Administration (FHA) established their “First Time Homebuyer” program many years ago, and their branding of that program has endured even to today.  But in the 1990’s, Conventional FNMA and Freddie Mac guidelines and lenders created more aggressive lending programs that eclipsed FHA’s program by introducing loans that required no down payment at all.  After the collapse of the mortgage market and government takeover of FNMA and Freddie Mac, all lending guidelines became much tighter and these Conventional no down payment loans have all but vanished.  In 2009, FHA made a huge comeback as the loan program of choice due to the relaxed underwriting guidelines and low 3.5% down payment. 

Below is a list of both advantages and disadvantages to using an FHA loan to help guide you in deciding if an FHA is right for you.

Disadvantages to an FHA loan:

1. Mortgage insurance is required in most cases, both monthly and an upfront fee of 2.25%.
2. The process can take a little bit longer.
3. Interest rates for A+ credit borrowers may be higher on FHA loans vs. Conventional rates.
4. FHA monthly mortgage insurance premium (MIP) must stay on the loan for a minimum of 5 years.  Conventional mortgage insurance (PMI) can be dropped once the property’s appraised value vs. balance owed shows an equity position of 20% or more.

Advantages to an FHA loan:

1. FHA only requires 3.5% down payment vs. Conventional 5%.
2. The lower monthly mortgage insurance premium often allows for a lower monthly payment.
3. FHA underwriting guidelines are more liberal on your debt to income ratio (you can possibly qualify for a slightly higher loan amount).
4. FHA underwriting does not use credit scores to qualify, so you may get an A+ rate when conforming lenders turn you down.  However, many individual lenders do set their own minimum credit scores over and above FHA’s guidelines.
5. Conventional lenders use Risk-Based Pricing that penalizes a borrower for having a lower credit score by requiring an increased rate or payment of additional points.  As of Nov 2009, FHA does not use credit scores for determining eligibility or pricing, but it has been proposed.  If your credit score is not A+, it is in your best interests to compare an FHA option side-by-side to a Conventional option to see which one is the best deal for your situation.  We highly suggest you look past the monthly payment and take note of your Remaining Balance Owed after 5 years.  If your monthly payments are about the same but one option has a lower balance owed after a term of 5 years or more, you are saving money with that option that has the lower balance owed. 

Our best guidance is to compare both options side-by-side and look at the ending balance numbers to make the best decision for your personal needs.  Then work with someone you trust that will help you understand the details so you can make the best decision.  Churchill Mortgage would be happy to assist you in this process. Contact one of our Home Loan Specialist at 1-888-562-6200 or Request A Call Back on our website www.churchillmortgage.com and we will contact you at a time that is convenient for you.