Saturday, September 20, 2014

FHA Versus Conventional Financing

Great article supplied by the Washington Post that compares FHA versus conventional financing. See excerpt and link below to read full article:

"Here’s the head-to-head: Say you want to buy a $180,000 house and you don’t have much cash for a down payment. If you go with a 3.5 percent FHA loan, you would need to come up with $6,300. If you select Fannie’s 3 percent loan, it’s just $5,400.
In Souto’s hypothetical, the rate on the FHA loan with zero points will be lower — 4.25 percent — than the 4.625 percent for Fannie. (A point is 1 percent of the loan amount.) But FHA’s new mortgage insurance premium charges spoil the rate advantage: $195.41 monthly for FHA vs. $123.68 for Fannie’s plan using private mortgage insurance. On a monthly basis, FHA costs $43.30 more — $1,064.67 compared with $1,021.37 — for principal, interest and insurance.
More important for buyers who plan to hold on to their low mortgage interest rates for years, Fannie’s insurance charges disappear when the principal balance on the loan reaches 78 percent of the purchase price of the home; that knocks $123.68 off the monthly mortgage bill. FHA’s insurance fees of $195.41 a month, by contrast, are a drag until you pay off the loan. FHA previously allowed cancellation, but that changed June 3, when the agency revoked the privilege for most new borrowers."

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