What's my home worth?
FHA and Conventional Loans
November 06, 2018
Interest rates are starting to jump a tad and it looks like we could see them in the mid 4's at some point soon. Rates are still crazy good if you look at them historically, but they have been exceptionally low since they broke into the 4's in 2009. Rates broke into the 3's for the first time in 2011 and they have been going from 3's to 4's and back to 3's again for the past 6 years. The above rates I am speaking about are your conventional 30-year fixed rate mortgages with a 740+ credit score. FHA rates are still in the 3's now, and basically have been in the 3's since 2010 and they have not left the 3's ever since. So what is the difference between FHA and Conventional loans? Why wouldn't we put everyone in an FHA loan since the rates are lower?
FHA has great rates, but every FHA loan has PMI and an Upfront Mortgage Insurance Premium. So an FHA loan at $400,000.00 would actually have a loan amount of $407,000.00. There is also a monthly Mortgage Insurance that stays on a loan for 11-30 years. It goes away after 11 years if you put over 10% down, otherwise the Mortgage Insurance is on the loan for the life of the loan. The Mortgage Insurance is about $288.00 per month on a $400,000.00 FHA loan. FHA has no real minimum credit score, but it is very difficult to qualify for an FHA loan with a score less than 580. FHA rates with a 740 credit score are better than the rates at 580, but a 680 credit score will likely get you the same rate as a 740 credit score. The PMI factor is based on down payment and not credit score.
A conventional loan has a higher interest rate, but there is no Upfront Mortgage Insurance Premium. If you have less than 20% down then there is PMI or you can buy out the PMI with a higher interest rate. If you have a 760 score with 5% down then your PMI Payment will be about half of the FHA PMI payment, but if you have a 680 score then your PMI will be about 25% more than FHA PMI! PMI on a conventional loan can be removed by the lender if you have 25% Equity after 2 years or 20% Equity after 5 years. If you have a 680 credit score then your rate will likely be about .375% higher than if you have a 740 credit score. The minimum credit score for a conventional loan is 620. Your PMI rate will go down if you put more money down and if you put 20% down then you will not have PMI!
Interest rates are still hanging in there at low levels, but it feels like they are ready for a move higher. I hope these are helpful as your buyers are looking for property:
30-year fixed conventional 1st Mortgage with 20% down - 4.125% (4.184 APR). Loan amounts up to $453,100.00 = $2195.95
15-year fixed conventional 1st Mortgage with 20% - 3.625% (3.725 APR). Loan amounts up to $453,100.00 = $3267.02
5/1 ARM 1st Mortgage - 20% down - Fixed for 5 years and then becomes variable - 3.750% - (3.809 APR) Loan amounts up to $453,100.00 = $2098.38
7/1 ARM 1st Mortgage - 20% Fixed for 7 years and then becomes variable - 3.875% - (3.931 APR) Loan amounts up to $453,100.00 = $2130.64
10/1 ARM 1st Mortgage - 20% Fixed for 10 years and then becomes variable - 4.000% - (4.056 APR) Loan amounts up to $453,100.00 = $2163.17
30-year fixed 1st Mortgage FHA loan 3.50% down - 3.750% (4.795 APR). Loan amounts up to $453,100.00 = $2135.10 + $326.56 PMI = $2461.66
30-year fixed 1st Mortgage VA loan 0% - 3.750% (3.985 APR). Loan amounts up to $453,100.00 = $2098.38
30-year fixed 1st Mortgage Jumbo loan 20% down - 4.250% (4.263 APR). Loan amounts up to $3,000,000.00 = $14,758.20
All of the above are based on a 740 credit score. Rates are subject to change without notice, your mileage may vary!