The purpose of this article is to articulate some of the most common benefits of utilizing a FHA loan to finance a home purchase in Phoenix. The first bolded sentence is what many real estate professionals believe to be truth.
- Phoenix FHA mortgage interest rates are higher than conventional.With tiered FICO pricing on conventional loans, FHA loan rates can actually be lower than conventional. The minimum FICO score required on a conforming loan before the borrower has to pay more points or a higher rate is 740. Using FHA financing, a 660 FICO score gives the buyer the same interest rate as someone with an 800 FICO score.
- Phoenix FHA loans are more expensive for the seller than a conventional loan. While this was true before 2006, this is no longer correct with FHA loans. Prior to Mortgagee Letter 2006-04, there were substantial costs involved that the buyer was not allowed to pay. Now, the only cost the buyer cannot pay is a $75 tax service fee (fee may vary from lender to lender – AmeriFirst Financial does not have this fee). This makes a FHA loan much more attractive to Phoenix sellers.
- Phoenix FHA loans require more paperwork. In prior years dating back to 2000 and before, FHA loans required much more paperwork and documentation than conventional loans. Now, there are only about seven additional application documents, when compared to a conventional home loan, which a buyer needs to sign.
- Mortgage Insurance cannot be removed on a FHA loan. When a homebuyer obtains a 15-year fixed FHA loan with 10% down payment, FHA requires NO mortgage insurance (MI). However, if MI is obtained, it must be held for at least 60 months.
- Phoenix FHA loans take too long to close. Today's conventional loans have many of the same fraud detection requirements similar to FHA. Most banks require 4506-T's for all borrowers, a verification of deposit and employment, and Social Security verification through Rapid Reporting. In house underwriting makes closing a FHA loan fast and efficient. David and his team can process FHA home mortgage loans in less than 30 days, and sometimes in little as 12 days.
- Phoenix FHA loans don’t benefit the buyer. FHA is the only loan with less than 5% down (3.5% down payment) in Arizona. MI is reasonable when compared to lower down payment conventional loans. Underwriting requirements are less strict on debt to income ratios and reserves. Buyers can also use non-occupying coborrowers to help qualify, as long as they are relatives. All of these things benefit buyers. There are VA, USDA and HomePath home loans that offer a lower down payment, but those are only applicable to Veterans and property specific homes.
- You need money to close as a buyer. All down payment and closing cost funds can be gifted by an acceptable source. The buyer can actually close without having any of their own money into the purchase.
- Phoenix FHA loans don’t benefit the seller. This is probably the most significant myth still active in today’s market. In truth, a 3.5% down payment with less than perfect credit and minimal cash reserves is a HUGE benefit to sellers in Phoenix.
- Conventional Financing is better than a FHA loan. In today’s market, conventional loans are much harder to close and the MI is more difficult to obtain. In my opinion, FHA is the best loan out there today for a buyer with a low down payment.
- Buyers don’t understand FHA loans. It is very easy for even the most unsophisticated person to understand the numerous benefits of FHA. In years of the past, it is true that some FHA calculations were complex. This is no longer reality.
- The Government gets involved in the FHA loan process.AmeriFirst Financinal, and many other mortgage bankers, control the entire process from application to funding. AmeriFirst can complete the transaction quickly and meet timelines with zero interference from the Government.
About the Author
My name is David Krushinsky and I am a Phoenix mortgage specialist that is truly passionate about my profession and the result is that nearly 100% of my business is by referral from satisfied clients, trusted financial advisors and the most experienced REALTOR®'s in the Phoenix area.
Questions? Call 480.339.1576 or Visit My Website
I agree with Ricky's comment! Well written blog with great content!
Tim
As an agent, I'm a giant fan of FHA loans. They really helped save our first- and second-time buyers over the last two years and it's a great deal all around, especially after the MI expires.
The biggest myth here in the Bay Area is that there is that the appraisal will be too harsh. This myth is fostered by real estate agents who sometimes refuse to consider FHA offers.
I found your article on another site. It seems this site is taking a lot of AR posts, or maybe they're coming from WordPress blogs, and using them without permission. But they do have the contact info intact, so I don't know if it's a big deal or not. Just in case you want to know, it's http://realtor.io/2010/12/11-phoenix-fha-mortgages-myths/
So many myths in our industry it's up to us to prove them different.
Thanks Joetta! That is odd that my blog ended up on that site. I posted it to a few other sites, but the content is slightly different. This version did come from AR though. Thanks for the heads up!
David... some very good info.... I have been doing FHA loans since 1994... I will disagree a little with stretching what it use to cost the sellers back in the day. It wasn't much at all and as a lender, you didn't have to charge it and collect it in the points or such. Just as I do now. I don't charge our lender fees, I just incorporate them into the points. Works out for the buyers in which they can write this off. The other thing... #6... are you telling me that you can't do the 97 Flex in AZ? That is a conventional loan that allows 3% down. Now, don't get me wrong.. I favor FHA loans more than anything, because it opens the door for so many more. And because I can manually underwrite, not conventional. And as you stated, the pricing adjustments for conventional loans can be more expensive, especially if they are putting down less than 10% with credit scores under 680. Did you know that it will get worse for conventional pricing adjustments in April? I wrote about this today... again, good post.
Hi David -- How much difference is there for areas outside of Phoenix?
wow...thanks for the post...some of this is very interesting...I wonder if all areas have some differences.
Hi David, Thanks for posting this info and for making these points in clear & concise terms.
Well written and important information as our market is FHA these days. Thanks for the post.
As of about 12/15/2010, 97% LTV loans are back in AZ. Can't you offer them?
Only 3% down and no upfront MI Premium. Great alternative to FHA.
97% LTV Conventional Loans
The max LTV on conforming loans is now 97%. There are no state restrictions on this product. All of the following criteria must be met:
Mike,
I haven't heard of any of the mortgage insurers offering MI on the Flex 97 for AZ properties. Who is insuring these loans? I checked the guides with Genworth, RMIC and MGIC to see if they are no longer considering AZ in a non-restricted market, but they still have the max LTV at 95%.
The biggest myth here in the Bay Area is that there is that the appraisal will be too harsh. This myth is fostered by real estate agents who sometimes refuse to consider FHA offers.
@Janet - Occasionally, this does happen in Phoenix as well. :)
@Jeff - Thanks for your input. I've read many of your posts on FHA. The FHA "junk fees" most people commonly referred to weren't a big barrier. However, in 2004-2005 in Phoenix, no one would even consider FHA because of $800-900 extra cost to the seller. Yes, you could build it into the rate, but often the seller would simply just disregard a FHA offer because of some of the reasons listed above. Also, I did hear about the conventional adjustments, but I'm going to check out your newest blog.
@Chris Olsen - There shouldn't be many differences for areas outside of AZ. AZ has been in listed in a declining market by MI co's for so long that up until a few months ago anyone financing a primary residence would have to put down 10%, even then MI required a 740+ credit score. AZ, NV, FL, and CA have really had to rely on FHA to allow many potential home buyers to obtain financing without 20% down. Sounds like that could be changing according to some of Mike Wald's commentary.
David.. thanks for replying back... hey, we all know real estate is local and so are mortgages... some regions have higher fees with lower rates... just curious.... what were the $800-$900 in costs to the sellers... I could only remember about $150 to $250 on our end... thanks and have a safe and happy New Year.
Jeff - I specifically remember telling agents to ask the seller for $863.00 for FHA. I was a broker so it consisted of a processing fee of $350, underwriting fee of $450 and tax service fee of $63 (I think...). The Mortgagee Letter 2006-04 was the one that no longer required the seller to pay these types fees, except tax service. It's possible your fees were lower though. I do remember our fees being higher at the time, especially to the likes of Bank One, Wells etc.
I got your email too!! Thanks man.. no worries. I'll call you later today to give you some feedback on those articles and discuss a few things.
David - very informative - thanks!
I also love the streamline refi FHA allows!
I often get my offers that are VA & FHA rejected because the listing agent is not up to date, on FHA or VA terms. I am amazed at how many local agents still do not understand the changes.
With the exception of the years 2004, 2005, 2006 and into 2007, FHA and VA have been used by most of our buyers.
I cannot understand where these stories get started or passed around, but I hear some of them too, mostly from buyers who have connected with an Internet lender who isn't approved for FHA or VA.
Thanks for the post. Very well written. A few notes: While your lender may require a 660 mid score many only require a 620 and a select few all the way down to 580 (First Mortgage Corp out of Diamond bar, CA, also licensed in Phoenix). Also, FHA mortgage insurance can in fact be removed after a minimum of 5 years of timely payments when certain LTV factors are met (78% LTV), this includes 30 year fixed fha loans
David: I think it is surprising that so many agents still have a negative opinion of using FHA financing. Years and years ago... many thought it has a negative connotation to it... but even then... I used it all the time, and it was just fine.
Thanks for a great post. Lots of really great info.
This is important information as I think many people are still misinformed about FHA loans.
good job david i will get with ricky in the am and beat him with a stapler great content good job
David - It's true that so many of those myths are started by Realtors/agents that are simply uninformed and uneducated about FHA loan products and the loan process in general. This is some great info for the consumer who is looking for a really good affordable loan.
Well documented blog. Good sales points all.
David, It is a little amazing that so many agents are still in the dark and misinformed abut FHA and VA loans in today's market. Nicely done!
David- Awesome post with all the details. I prefer to do the FHA loans compared to conventional because with all the extra overlays and the extra review for pmi on conventional. Plus we must add the UPFMI is now only 1% compared to the old 2-3% range. Great savings. I am now selling more 15 year FHA that 30 because the low or no mi. Many people still think FHA is for the bad credit or for the first time home buyers, which you and I know that is not the case. It takes time to re-educate these clients but in my opinion in most cases FHA is the way to go. Good luck to you in 2011.
@Lenn - You're exactly right and that's a great point. I remember some loan officers, even in my own company, who did not know how to do FHA/VA that were steering buyers into subprime loans during those years in your comment. It's a common sales tactic among the lender community to offer what you're comfortable with and steer buyers away from what you're not. In fact, it still takes place today with FHA 203k loans.
@The Loan Ranger - To clarify, the post says a buyer with a credit score of 660 should receive the same rate as a buyer with a 800 credit score on a FHA loan. My company has pricing adjustments for lower FICO scores, but can still do FHA loans for borrowers with lower credit scores. This post wasn't intended to rule out buyers with lower FICO scores from a FHA loan. Also, thanks for mentioning the 78% LTV requirement on the removal of MI.
@Carolyn - Yes, like Lenn said, many agents and loan officers sometimes spread these falsities.
@Mark Taylor - we can prank dial him this weekend.
Thank you Donne, Jon, Deborah Garvin, and Christine for your commentary. :)
I forgot to mention great post and very well documented. Thanks!
There are still a lot of myths about FHA floating around. I always suggest FHA over conventional with MI any day. The MI companies are still very reluctant to issue certificates for new coverage.
Good info here, David, particularly the different issues with mortgage insurance for FHA vs. conventional. This is the kind of info that helps agents help buyers, which leads to closed transactions.
@Chris - thank you brother.
@Rodney - The guidelines are extremely difficult in AZ, along with other declining markets. I'm with you on the FHA bandwagon.
@John - I'm glad that you found some benefit to the article. Thank you!
David - excellent post and perfect for our phoenix area cliental as we're doing mostly FHA loans and have for some time know. Thanks - and I'll also reblog.