Recently I had a very unsettling conversation with another lender regarding FHA loans. The conversation started with the lender asking if our company/branch does FHA loans. My answer was “yes, of course”, then it proceeded with “Don’t you feel FHA is not a viable option because of the new life of the loan MI requirement?” and then continued with them exclaiming that they strongly discourage their clients into getting an FHA loan because of this AND because they are more complicated.
My immediate response was “WHAT”? “REALLY”? This took me by surprise and honestly left me flabbergasted, truly unbelievable. This also made me wonder how many other lenders feel this way? Yes, there are a few more documents/disclosures and requirements a lender may need to provide, but for the benefit of a client, it is WELL worth it. Plus, in certain cases FHA may be a clients only option and chance to becoming a homeowner, or refinancing out of a higher interest rate loan.
So why go FHA?
For some it is the only way they are able to qualify for a mortgage. FHA has more flexibility with credit score requirements, debt ratios, time since derogatory incidents (like foreclosure, short sales, bankruptcies), down payment amounts/sources to name a few key differences. Not everyone has A+ credit or has 5%-20% for a down payment. FHA is able to offer the lower down payment because they have a upfront mortgage insurance premium (UFMIP) as well as a monthly mortgage insurance premium (which was recently changed to be for the life of the loan) BUT, look at the benefits. YOU CAN GET A HOME LOAN if you don’t qualify for a conventional loan!
Something to consider, IF you have a lender who is discouraging you from getting an FHA loan, the question should be “Why?” is it because of the MI being the life of the loan…. is it because an FHA loan is too hard for them to process? Another thing to ask yourself is if the only reason you are hesitant about getting into an FHA loan because of the monthly MI, my question to you would be “how many homeowners stay in the same mortgage for the full 30 years?”. When rates go lower what is the first thing you are going to want to do? Refinance! Or if you know your homes value has increased and you have sufficient equity, what are you going to want to do? Refinance. Which means that mortgage insurance being there for the life of the loan is relative to the time you hold that mortgage. So it is all relative, and cross applicable to Conventional loans with PMI as well.
So don’t be discouraged, know your facts. Talk with someone who is highly experienced with FHA loans. Find out if it is right for you.