This Article Is About Florida Mortgage Rates On Conventional Loans Versus FHA Loans
Florida mortgage rates on Conventional Loans in comparison to FHA Loans are higher. Current Florida Mortgage Rates On Conventional Loans on average is 0.50% higher than FHA loans for borrowers with credit scores between 620 and 680 FICO. Florida Mortgage Rates On Conventional Loans depends on borrowers’ credit scores. Most mortgage applicants think that just because they qualify for Conventional Loans that FHA Loans are out of the picture. Borrowers who qualify for conventional loans automatically feel they need to go with a Conventional mortgage. This may not be in the best interest of the borrower. Homebuyers who qualify for both Conventional and FHA loans need to weigh the pros and cons of going with a Conventional loan versus an FHA loan. Florida Mortgage Rates On Conventional Loans is substantially higher for borrowers with credit scores for borrowers with under 680 FICO. Borrowers need to consider various factors such as the cost of private mortgage insurance on credit scores under 680 FICO compared to the annual FHA mortgage insurance premium of 0.85%.
In this article, we will discuss and cover Florida mortgage rates on conventional loans in comparison to FHA loans.
How HUD Insures Lenders On FHA Loans In Florida
Fannie Mae and Freddie Mac set the requirements on Conventional Loans. Conventional Loans are not guaranteed by any government agencies. HUD, the parent of the Federal Housing Administration (FHA), insures FHA Loans. FHA loans are backed by HUD. HUD does not originate, process, underwrite, or fund FHA loans. The role of HUD is to insure and partially guarantee lenders in the event borrowers default FHA loans that are originated and funded by private lenders. HUD guarantees lenders against the loss sustained by borrowers if borrowers default on their FHA Loans and go into foreclosure. Due to this guarantee by HUD, private lenders can offer low mortgage interest rates on FHA Loans. This holds true even though borrowers only put a 3.5% down payment. Private lenders have a sense of security with FHA Loans. As long as mortgage companies follow the minimum agency HUD Guidelines, mortgage lenders will be covered by HUD. For any borrowers who default on their FHA loans, HUD will partially cover the loss of the mortgage lender. However, lenders need to make sure the borrower meets the minimum agency mortgage guidelines when they originate and underwrite the borrower.
The Role Of Fannie Mae And Freddie Mac On Conventional Loans
Florida Mortgage Rates On Conventional Loans is highly dependent on the risk the lender needs to take. Fannie Mae and Freddie Mac set conventional loan requirements. Conventional loans are often referred to as conforming loans because they need to conform to Fannie Mae and Freddie Mac agency guidelines. The Federal Housing Finance Agency (FHFA) is the federal agency that regulates Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are not government agencies. It is a Government-Sponsored Enterprises (GSE).
The Importance Of Fannie Mae And Freddie Mac To Mortgage Lenders Of Conventional Loans
Fannie Mae and Freddie Mac are private mortgage giants that are regulated and semi-controlled by the Federal Housing Finance Agency (FHFA). These two mortgage giants are the largest buyers of mortgage loans from mortgage companies. The role of Fannie Mae and Freddie Mac is to maintain liquidity in the mortgage markets by buying mortgage loans from lenders so lenders have liquidity. Lenders need to have liquidity in their warehouse line of credit in order to keep originating and funding mortgage loans. Due to Fannie Mae and Freddie Mac, mortgage companies can continue originating loans at low rates and have a smooth mortgage process.
Why Are Conventional Loans Called Conforming Loans
Many borrowers are confused why conventional loans need to conform to Fannie Mae and/or Freddie Mac agency mortgage guidelines if conventional loans are not backed by any government agencies or GSE like Fannie Mae or Freddie Mac. The reason conventional loans need to conform to Fannie Mae and Freddie Mac GSE agency guidelines is that Fannie Mae and/or Freddie Mac will not purchase any loans that do not conform to their agency mortgage guidelines. The role of Fannie Mae and/or Freddie Mac is to provide market stability by buying mortgage loans from lenders.
The Mortgage Process On Conventional Loans
Mortgage lenders use their warehouse line of credit to originate and fund mortgage loans. Once they fund the loans, they need to sell the mortgages they funded on the secondary market in order to pay down the warehouse line of credit. The warehouse line of credit needs to be paid down in order for lenders to originate and fund more loans. If they do not sell the loans they funded, they will not have enough room to originate more loans. Fannie Mae and Freddie Mac are the biggest buyers of mortgages in the United States.
How Mortgage Companies Price Florida Mortgage Rates On Conventional Loans
Since Conventional Loans are not insured by the federal government, pricing on Florida Mortgage Rates On Conventional Loans, lenders are more strict on credit/income requirements and the borrower’s ability to repay. Lenders do not have a government agency to back and insure conventional loans. Mortgage companies need to weigh the layered risk factors on borrowers with lower credit scores, higher debt to income ratios, past payment history, prior bad credit, prior late payments, job stability, and payment patterns.
Loan Level Pricing Adjustments On Conventional Loans
Lenders have set the pricing on conventional loans for prime borrowers. Prime borrowers are folks with at least a 740 credit score, 20% down payment, lower debt to income ratio, and perfect timely payment history. Lenders have pricing hits on several factors they consider layered risk factors of the borrower.
Florida mortgage rates on conventional loans are dependent on loan level pricing adjustments on the following factors:
- borrowers credit scores
- there are tiers of pricing adjustments on the borrowers credit scores
- the lower the credit scores, the higher the mortgage rates on conventional loans
- type of property
- loan to value
- automated underwriting system findings
- ability to qualify for private mortgage insurance
- amount of down payment borrowers put down on their home purchase
- borrowers debt to income ratio
Fannie Mae and Freddie Mac require all Conventional Loans with less than 20% equity require the borrower to have private mortgage insurance.
Private Mortgage Insurance On Conventional Loans Versus FHA Loans
Private mortgage insurance on conventional loans is not required if the homebuyers put down a 20% down payment or a homeowner refinances their home with at least an 80% LTV. Pricing on private mortgage insurance on conventional loans is set at a fixed factor-like FHA Annual 0.85% Mortgage Insurance Premium. Private mortgage insurance companies set the pricing on private mortgage insurance on a case-by-case scenario depending on many factors. Private mortgage insurance companies can deny mortgage insurance for any borrowers if they think they are considered a bad risk.
The Role Of Private Mortgage Insurance Companies
The role of private insurance companies is to cover the loss sustained by lenders in the event the borrower defaults on their conventional loans. PMI companies is similar to government-backed agencies like HUD, VA, USDA. Government-back mortgages are insured by government agencies. Conventionall loans need mortgage insurance from private mortgage insurance companies. This is why every conventional loan borrower will get a different rate on private mortgage insurance based on their credit risk.
Mandatory Mortgage Insurance Premium Requirement On FHA Loans
HUD requires a one-time 1.75% FHA mortgage insurance premium and a lifetime 0.85% annual mortgage insurance premium that is escrowed by the lender and amortized monthly. The annual FHA MIP is paid monthly and is escrowed every year by the mortgage servicer. HUD mortgage insurance premium on FHA loans is fixed. The annual mortgage insurance premium is a fixed amount of 0.85% no matter what the borrowers’ credit scores or loan to value is. Every borrower pays the one-time upfront FHA mortgage insurance premium of 1.75% which is rolled into the FHA loan balance. The Annual FHA mortgage insurance premium is 0.85% for all Borrowers on a 30 year fixed rate FHA Mortgage. This holds true no matter what the borrowers’ credit scores are. The annual FHA mortgage insurance cannot be cancelled no matter what the loan to value is. The only way the annual mortgage insurance premium can be canceled is by refinancing the existing FHA loan or when the homeowner sells the home. On conventional loans, the private mortgage insurance can be canceled when the loan to value falls below 80% LTV.
Conventional Private Mortgage Insurance Requirement Versus FHA MIP
Fannie Mae and Freddie Mac do not require private mortgage insurance for the entire term of a conventional loan if the loan to value falls below 80% LTV. One of the main advantages of Conventional Loan Financing is that there is no mandatory monthly mortgage insurance for borrowers who put a 20% down payment on a home purchase or homeowners refinancing their home loan with at least an 80% LTV. Homeowners can request the elimination of private mortgage insurance if they think they have 20% or more equity.
How Can Homeowners Cancel Private Mortgage Insurance On Conventional Loans
An appraisal is required to determine the value of the property if the homeowner is requesting the elimination of private mortgage insurance. For homeowners who are refinancing their homes with a conventional loan and have 20% or more equity, there is no private mortgage insurance that is required. Private mortgage insurance is mandatory for homes with a loan to values higher than 80% LTV. Pricing on private mortgage insurance is a variable price depending on the risk factor of the borrower by the private mortgage insurance company.
No Upfront Mortgage Insurance Premium On Conventional Loans
FHA borrowers pay an upfront mortgage premium of 1.75% of the loan amount.
The upfront FHA MIP can be rolled into the balance of the FHA Loan. Borrowers also have an annual FHA mortgage insurance premium of 0.85%. Homeowners need to pay for the term of the 30-year fixed-rate mortgage on their FHA Loans. The annual FHA MIP is amortized in 12 equal monthly payments: It is part of the borrower’s monthly mortgage payment and is escrowed. FHA mortgage insurance cannot be canceled with the new laws that will take into effect in June 2013. Even if the FHA mortgage falls below 78% loan to value, you are still stuck with paying mortgage insurance for the life of the loan. Florida Mortgage Rates On Conventional Loans are generally higher than FHA mortgage rates.
Pros And Cons Of FHA Loans Versus Conventional Loans
FHA mortgages have many advantages and are a great program for those homebuyers with prior bankruptcies and foreclosures. Borrowers can qualify for an FHA mortgage loan with a prior bankruptcy. This holds true as long as the bankruptcy has been discharged for at least two years. Fannie Mae and Freddie Mac have a four-year waiting period for borrowers to qualify for Conventional Loans after a Chapter 7 Bankruptcy discharge date. Mortgage applicants can qualify for an FHA mortgage three years after the recorded date of foreclosure, deed in lieu of foreclosure, short sale.
Pros And Cons Of Conventional Loans Versus FHA Loans
For Conventional Loans, borrowers need to wait a minimum of 4 years after a short sale and/or deed in lieu of foreclosure to qualify. There is a mandatory waiting period of four-year to qualify for a conventional loan after a deed in lieu of foreclosure and/or short sale. The waiting period to qualify for conventional loans after a standard foreclosure is 7 years from the recorded date of the foreclosure.
Conventional Loan First-Time Homebuyers Down Payment Requirements
The minimum credit score to qualify for a 3% down payment conventional loan is 620 FICO for first-time home buyers. A first-time homebuyer is a buyer who did not have any ownership of a home in the past three years. However, a 620 credit score on conventional loans is considered very low. Borrowers with a 620 credit score may have very high rates and may need to pay discount points. Private mortgage insurance companies may not even insure borrowers with 620 credit scores on conventional loans if they do not have strong compensating factors and strong reserves. It will be difficult to get an approve/eligible per automated underwriting system with a 620 credit score on conventional loans.
Conventional Loans Minimum Down Payment Requirements On Home Purchase
5% down payment for a seasoned home buyer. 3% down payment is not for a homebuyer who had any interest in a home in the past three years. Fannie Mae and Freddie Mac consider first-time homebuyers as someone who did not have ownership of a home for at least three years but can have had ownership before. Any homebuyer who do not put a 20% down payment, private mortgage insurance is required.
FHA Loan Requirements On Down Payment On Home Purchase
The minimum credit score required to qualify for a 3.5% down payment FHA Loan is 580 FICO. Homebuyers can qualify for FHA Loans with credit scores under 580 FICO and down to 500 FICO if they put a 10% down payment. Prior bankruptcies, foreclosures, deed in lieu of foreclosures, a short sale has nothing to do with mortgage rates. There are no pricing adjustments for borrowers with prior bankruptcy, housing events, or prior bad credit on both conventional and/or FHA loans.
Having A Mortgage Included In Bankruptcy On Conventional Loans Versus FHA Loans
Homebuyers who had a mortgage or multiple mortgages as part of their Chapter 7 Bankruptcy can qualify for a conventional loan four years from the discharged date of their Chapter 7 Bankruptcy. This holds true as long as the transfer of the deed to the property has been finalized.
What this means is the following:
- that the waiting period starts from the discharged date of the Chapter 7 bankruptcy
- and the property that was included in the bankruptcy could have been finalized through foreclosure, deed in lieu of foreclosure, short sale after the discharged date
- and that has no impact on qualifying for a Conventional Loan
This is not the case with FHA Loans. With FHA Loans, homebuyers who had mortgage or mortgages as part of their Chapter 7 Bankruptcy, the waiting period is three years from the recorded date of the foreclosure, deed in lieu of foreclosure, or short sale. The waiting period on conventional loans is after the discharge date of the Chapter 7 Bankruptcy and not the date of the housing event.
Home Buyers interested in qualifying for mortgage loans in Florida or any of the states Gustan Cho Associates is licensed in and want to see what the best rates they are eligible for, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, holidays. We have competitive Florida mortgage rates on conventional loans. Gustan Cho Associates are direct lenders and have our own mortgage underwriters and can get borrowers same day approval on conventional and government loans.
