100% home financing vs FHA?

Question

Can someone give me the pros and cons of both?

Answer 1

FHA was designed to help people who didn't have enough down payment money for a conventional loan. FHA requires private mortgage insurance to cover the lender until the loan balance gets to 80% or lower of the appraised value of the property.

If you have a lender who will give you 100% financing, you don't need FHA. You'll probably have a higher monthly payment, but it will all be going to principal and interest(which is tax deductable).

Also, once you are paying the private mortgage insurance premium FHA requires, it is included in your monthly payments and it is not protection for you, it is solely to protect the lender. It is often hard to get FHA to drop the private mortgage insurance once you pay it down to 80% of appraised value. I'd go 100% financing if it was available. Hope this helps.

Answer 2

FHA is a great product. 97% financing, low fixed rates, easy credit qualifying. But, FHA charges 1.5% of your loan amount as an upfront mortgage premium. Then you'll pay .5% annually, paying 1/12th monthly as part of your normal mortgage payment in monthly mortgage insurance. FHA also is stricter on condition of the property, so on an older home, you might identify and correct issues that wouldn't come up with a conventional loan.

Doing 100% financing using conventional loans is often cheaper in the long run, if you have great credit. Slightly lower rates might be available, but mainly, if you have strong credit (680 scores or higher, even 660 in some cases), you can often get lower fixed monthly payments by doing an 80/20 conventional. This means an 80% first mortgage, a 20% second mortgage, and no mortgage insurance is required.

I just did a direct comparison between the two for a client of mine. In her case, with strong credit, the monthly payments ended up being almost the same, however, with the FHA she put more money down, and it was about $1500 more expensive. Not a huge difference, but enough to say that for her, it might not be her best solution. FHA was cheaper than a 100% conventional loan with mortgage insurance though.

So, long story short: 680 scores and higher, a conventional 80/20 might be cheaper. 660 scores should look at both. Anything below 660, FHA is likely the best deal in town. And FHA does NOT have a minimum credit score. They mostly just want to see that the past 12 months were spotless, and the past 24 months are pretty good on payment history.

Answer 3

The only thing I can say about FHA that is a con is that thye charge you about $1000 in your closing osts just to get that type of a loan.

Answer 4

it depends...