Is an FHA loan right for me?
Government sponsored loan programs, such as FHA loans, have been getting a lot of press lately. But, how does an FHA loan differ from a conventional loan? What are the advantages of each?
FHA
The Federal Housing Authority (FHA) was created in 1934 to help potential homeowners gain access to money to boost homeownership rates throughout the United States. FHA loan programs require very little money down on a new purchase (usually only 3.5% of the purchase price) and will lend up to 85% of the value of a home on a cash out refinance and 97.75% of the value of the home on a no cash out refinance. This high loan-to-value ratio is the primary appeal of an FHA transaction.
The FHA is not a lender and does not actually make or guarantee home loans. They insure the loans we can assist you in obtaining.
FHA Mortgage Insurance Premiums (MIP)
Every FHA loan requires Mortgage Insurance Premiums (MIP) regardless of the down payment amount or loan to value. In addition, FHA loans require Up-front Mortgage Insurance Premiums (UFMIP). The UFMIP can be financed into the loan.
FHA also has maximum loan amount restrictions that differ from county to county. Click here to view the maximum loan amount in your area.
Conventional loans
There are three types of conventional loans: conforming, super conforming and jumbo.
Conforming loans
A conforming loan requires a loan amount of $510,400 or less. Conforming loans offer a larger variety of loan programs than FHA with a wide array of lending options. A conforming loan generally requires a larger down payment for a purchase (usually at least 5%) and has more restrictive guidelines on getting cash out of the property for a refinance.
The big advantage of conforming loans is that they do not require Private Mortgage Insurance (PMI) if the loan amount of the new first mortgage is 80% or less of the value of the home. The elimination of PMI can offer a significant savings over the life of the loan.
Super Conforming Loans
On January 1, 2009 the "super conforming" loan was created for loan amounts up to $765,600. These new higher loan limits were meant to be crossover loans for high cost areas where housing values tend to be higher. Super conforming loans are only available in certain counties and generally have more stringent lending guidelines than a conforming loan.
Click here to see the maximum super conforming loan amount in your county.
Jumbo loans
A jumbo loan is any loan amount over the super conforming loan limit. Jumbo loans generally have slightly tighter lending standards and may require a down payment of at least 10% of the purchase price. Jumbo loan programs are as diverse as conforming loan programs and also do not require PMI if the loan amount is less than 80% of the value of the home.
Summary
So, to summarize, it is really all about loan-to-value. If you plan on putting down a small down payment, than an FHA loan is most likely your best bet. But, if you are putting down a larger down payment, a conventional loan will be the way to go.
Your personal Loan Originator can assist you in choosing whether an FHA or conventional loan is best suited for you. Simply, click Get Started, enter your loan details, complete the simplified online loan application and you will be assigned a personal Loan Coordinator who can assist you every step of the way.
Speak With A Loan Originator
Would you prefer to speak with a Loan Originator over the telephone? Please call us directly at 1-800-276-CYOL(2965) and choose option 1. Or, click here to have one of our experienced representatives contact you directly.