FHA loans - Are they the best out there?

FHA loans seem to be the most used mortgage program of 2009. Is it because it's the best mortgage out there? Probably not, but it does fit more borrowers profiles than most other loans, making it easier to obtain.

Which mortgage program do I think is the best out there? VA loans, followed by USDA loans, then FHA loans, and lastly.... conventional loans.

Let's break it down very easily, so most can understand. And if your loan officer is selling against one loan or another, yet you fit the profile that I mention below, then I would seek outside help from a loan officer that can break all of this down for you. Trust goes a long way, yet some loan officers use key terms and or phrases to make you feel comfortable upfront. Just beware .....

Type of Mortgage	FHA Loans - FHA Mortgages	VA Loans - VA Mortgages	USDA loans - USDA mortgages	Conventional loans
Down Payment	3.5%	0.00%	0.00%	3% / 5% / 10%
Upfront Mortgage Insurance	1.75% or 1.50%	2.00% or higher on refi's	2.00%	Zero percent w/ other options
Monthly Mortgage Insurance	.55% or .50% -depending on downpayment	Zero percent monthly - NO MI	Zero percent monthly - NO MI	Depending on down payment - .85% or lower
Interest rates -	low w/no penalties from 620 & above	¼ pt hit higher than FHA loans (not a ¼ % in rate, just points)	About a ¼% higher in rate than FHA	If less than 20% dwn & credit scores lower than 700, major pricing hits.
Property - location	No restrictions	No restrictions	Specified areas - there is a USDA map to determine if property is acceptable	Some restrictions that could hurt down payment - if in declining markets
Income	No restrictions	No restrictions	There are income restrictions	No restrictions
Debt to income ratios All ratios mentioned have front & back ratios - __% / __% unless noted.	Easiest & best to deal with - normal 31% / 43% - can go up to 45% / 50% - depending on underwriting system & compensating factors - Manually underwriting allowed	41% - one ratio - can go to 45%, depending on system and compensating factors	29% / 41% - debt ratio waiver is allowed with 660 credit score or higher unless there is 100% payment shock or no rental history - case by case	29% / 38% - you can go higher, but you have to have an approval in the system... no butts.
Seller Contribution limits	6% of purchase price	4% of purchase price plus up to 3 pts	Unlimited /reasonable	Up to 3% if LTV is less than 90%. Up to 6% when 90% or below

As you can see, VA loans & USDA loans would more in likely be your cheapest mortgage payment. FHA mortgages in most cases, would be your easiest loan. Mortgage payments would be slightly higher due to the monthly mortgage insurance. And in most cases, if you don't have more than 20% down and with credit scores above 720, your mortgage payment would be the highest. Don't believe me, please read this FHA loan vs conventional loan comparison - A rude reality check!!!

Keep in mind, there are many more restrictions on conventional loanswhen it comes to PMI, the monthly mortgage insurance. Robert Rauf did an excellent job of breaking down the realistic expectations of what can be done when it comes to conventional loans and if you could get mortgage insurance. Please read : The New World of PMI - Private Mortgage Insurance

Lastly, there are loan amount restrictions when it comes to the maximum loan amounts for FHA loans and conventional loans after some restrictions when it comes to jumbo and super jumbo.

For more information & comparions, please read these posts :

• USDA Loans - The Rural Housing Loan - The Basics
• FHA loans vs Conventional loans - A true numbers comparision with 5% down - Using a 710 credit score
  
• FHA loans vs Conventional loans - A real comparision with 5% down - Using a 659 credit score
  
• FHA Loans vs Conventional Loans - 20% down - A Rude Reality Check - Would you believe that FHA loans could be cheaper even with 20% down? Come see why and how.

• FHA Loans vs Conventional Loans - 5% - 4 comparisons that you need to know - Comparing a FHA loan against 3 types of conventional loans with different types of monthly mortgage insurance. Guess who won while still using a 679 credit score.....

The First Time Homebuyer Series :

- First Time Homebuyer Tips : FHA - Conventional - VA - Subprime - The Basics - Part 1 of 5

- First Time Homebuyer Tips : Getting Qualified & Knowing your Credit - Part 2 of 5

- First Time Homebuyer Tips : Understanding the total mortgage process - Part 3 of 5

- First Time Homebuyer Tips : FHA, a better mortgage program? - Best Programs & Why - Part 4 of 5

- First Time Homebuyer Tips : Summary - Red Flags to be aware of - Part 5 of 5

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- Mortgages -

Experience & Knowledge at its BEST !!!

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger