FHA Loans: Mortgage Insurance Premium

FHA loans are a great mortgage loan product where it is much easier to qualify than conventional loans due to the more lenient mortgage lending guidelines.  Many mortgage loan applicants, especially first time home buyers, are forced into going with a FHA mortgage loan because they are limited with the down payment, higher debt to income ratios, or lower credit scores.  However, one of the major disadvantages with FHA loans versus Conventional loans is that FHA loans have the lifetime mandatory FHA mortgage insurance premium which is 1.35% of the mortgage loan balance.  This FHA mortgage insurance premium is required to be paid throughout the lifetime of the FHA loan.  Conventional loans do not require mortgage insurance on any loans with loan to values of at least 80% and those who have mortgage insurance required on their mortgage loans due to higher than 80% loan to values only have to pay a fraction of the 1.35% mortgage insurance premium mandated by FHA.  FHA loans have lower mortgage rates than conventional loans.   Current 30 year fixed FHA mortgage rates as of May 2 2014 were at 4.25%.  I now have wholesale conventional mortgage lenders that offer conventional mortgage rates as low as 4.25% on a 30 year fixed rate conventional mortgage loan as of 05/02/2014.  If you currently have a FHA loan and are thinking of eliminating your FHA mortgage insurance premium, this might be the time to explore the idea of refinancing your FHA loan into a conventional loan.

Requirement For Conventional Loans Versus FHA Loans

Not everyone can qualify for a conventional loan.  Conventional loan programs are tougher to qualify than FHA loans.  Those who currently have a FHA loan might not qualify to refinance their current loan to a conventional loan.  For example, the waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale is different for conventional mortgage loan programs than it is for FHA loans.  Waiting periods after a bankruptcy for a FHA loan is two years after the bankruptcy discharge date.  Waiting period after a bankruptcy for a conventional loan is normally between 4 to 7 years after the discharge date of the bankruptcy.  Waiting period after a foreclosure for a FHA loan is 3 years after the recorded date of the foreclosure.  However, the waiting period after a foreclosure to qualify for a conventional loan is 7 years after the recorded date of the foreclosure’s recorded date.  Waiting period after a deed in lieu of foreclosure and/or short sale for a FHA loan is three years from the recorded date of the deed in lieu of foreclosure or the HUD’s settlement date of the short sale.  There are special waiting period requirements for those who have had a prior deed in lieu of foreclosure and/or short sale for conventional loans.

Waiting Period For Conventional Loan After Deed In Lieu Of Foreclosure And Short Sale

If you had a deed in lieu of foreclosure or a short sale, you may qualify for a conventional mortgage loan if you can have a 20% down payment on a home purchase or can qualify for a conventional refinance mortgage loan if you have at least 20% equity in your home.  It is four years after a deed in lieu of foreclosure or short sale if you have a 10% down payment for a home purchase or a 10% equity position in your home for a conventional refinance mortgage loan.  Foreclosures and bankruptcies do not apply.

Eliminate FHA Mortgage Insurance Premium By Refinancing To Conventional Loan

Mortgage rates for conventional loans are now the same as mortgage rates for FHA loans as of May 2, 2014 for those mortgage loan applicants with at least a 700 FICO credit score.  Even if conventional mortgage rates were slightly higher than FHA mortgage rates, it may be wise to explore the idea or refinancing your current FHA loan to a conventional loan due to either the total elimination or reduction of FHA mortgage insurance premium.  For those who have higher than 80% loan to values, there are conventional mortgage loan programs which require no mortgage insurance paid by the mortgage loan borrower.  This no mortgage insurance required conventional mortgage loan program is called Lender Paid Mortgage Insurance, also known as LPMI, and is available by many conventional mortgage lenders for a slightly higher mortgage rates.

2015 Changes To Conventional Loans

The 2 year waiting period after short sale and deed in lieu of foreclosure with 20% down payment to qualify for conventional loan is no longer in effect as of August 2014.

Gustan Cho

www.gustancho.com

 

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.