1. Better FHA rates compared to conventional mortgages thanks to a government guarantee

* Conventional loans are more sensitive to creditworthiness when it comes to mortgage rates:

– This is because conventional loans are not guaranteed and/or insured by a federal agency, just like FHA loans
– FHA loans are insured by HUD
– HUD is the parent of FHA
– FHA will protect lenders against losses if borrowers default on their loans – FHA
– Due to the HUD government guarantee, FHA mortgage rates are generally lower than for compliant loans
– FHA loans do not include loan price adjustments to the value of the loan (LTV)
– Again, the reason why FHA loans do not have LLPA for LTV is the HUD guarantee
– However, for all 30-year FHA loans with a fixed interest rate, the annual MCI FHA is 0.85% for the duration of the loan

2. Why FHA loans are very popular

* FHA loans are one of the most popular loan programs in the United States.

– HUD, FHA parent, sets out federal agency minimum guidelines for FHA mortgages
– Over 40% of all home buyers use FHA loans to finance their homes
– One of the most popular reasons why home buyers choose FHA instead of conventional loans is that FHA loans have much milder mortgage guidelines compared to conventional loans
– Borrowers may be eligible for FHA loans with credit ratings up to 500 FICO
– To be able to apply for an FHA loan of 3.5%, the borrower must have 580 credit ratings
– Borrowers with under 580 FICO and credit ratings up to 500 may qualify for FHA loans, but need a 10% down payment
– The minimum credit assessment requirements for traditional loans are 620 FICO
– 620 credits are considered very bad for traditional loans
– Borrowers with 620 FICO will receive a very high mortgage rate plus discount points
– For FHA loans, the credit rating is not bad
– Borrowers with 620 creditworthiness assessment will receive nominal interest rates and most likely no discount points will be charged
– FHA has higher debt-to-income limits compared to traditional loans
– Borrowers can have a debt-to-income ratio of 56.9% DTI for FHA loans

* Conventional loans will reduce the debt-to-income ratio by 50% to get approval/qualification for the Automatic Emission Guarantee System (AUS).

Read more https://gustancho.com/fha-versus-conventional-mortgage-rates

* You want to know more, contact The Gustan Cho Team at 262-716-8151 or send a text message for faster response.
Or write to us at gcho@loancabin.com. We are available 7 days a week, in the evening, on weekends and holidays.

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ALEX CARLUCCI – SVP Mortgage Banker, NMLS# 229891

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