Mortgage 101 – FHA Mortgage Loan
We wanted to highlight some of the advantages and disadvantages of an FHA mortgage loan as well as explain some of the factors that come into play when Marquee Mortgage works with your buyers to find the best program for their specific situation(s).
Every buyer is different – Marquee Mortgage, LLC takes pride in ensuring that every borrower that we work with gets the right loan program for them.
FHA – Advantages
FHA mortgage loans are typically the easiest type of mortgage loan to qualify for because of FHA’s low down payment requirement (3.5%) and the ability for borrower’s to qualify with less than perfect credit. In addition, interest rates are typically lower than conventional/conforming mortgage rates.
FHA Loans Offer:
- Better rates than conventional mortgage loans
- Low down payment options, 100% gift funds acceptable
- Easier qualifying
- High DTI ratios – up to 59% in some cases
- Both Manual and Automated approvals available
- Will allow non-occupant co-borrowers
FHA – Disadvantages
The single biggest disadvantage to an FHA mortgage loan is summed up in two words: mortgage insurance. While conventional mortgage loans also require monthly mortgage insurance under some circumstances, FHA mortgage loans have two distinct types of mortgage insurance:
Upfront mortgage insurance premium is required on every FHA loan regardless of LTV or loan amount.
Is it possible to have an FHA loan without monthly MIP?
Not any longer. In the past FHA MIP was not required when the borrower put down a sizable down payment. As of April of 2013 MIP is required on all FHA mortgage loans regardless of down payment amount.
FHA loan amounts are capped based on the region in which the property being lended upon is located. The maximum FHA loan amount for Maricopa County is currently $271,050. Compare this to the maximum Conventional/Conforming loan amount of $417k.
Upfront MI Calculation
The upfront mortgage insurance premium is a standard 1.75% of the loan amount charged the borrower which may either be paid at closing or financed into the mortgage loan.
The image below shows an example of a UFMIP calculation based on a loan amount of $250,000.
Sample UFMIP Calculation
Monthly MIP Calculation
The monthly mortgage insurance component is calculated using an annual charge of 1.35% of the loan amount. This annual charge is then divided by the 12 months of the year and is paid along with the borrower’s mortgage payment. This amount is typically higher than the monthly mortgage insurance premium associated with Conventional loans.
The following image shows MIP calculation for the same loan used in the previous example.
Sample MIP Calculation
Have questions regarding FHA loans?
Please feel free to call us anytime at 602.557.0606, email us at email@example.com, or use the Contact Us form on this website. We will respond to your inquiry as soon as possible!
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