FHA Loan

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I just heard about the 3.5% FHA loan and it sounds pretty appealing. I'm kind of hesitant about low money down tactics though. Does anyone know of good resources that explain some of the pros and cons of an FHA loan vs conventional financing? Thank you!

[Albert Bui]

yes to be simple, FHA requires 1.75% UFMIP (up front mortgage insurance premium) which is usually financed into your loan so even though FHA is 3.5% down or 96.5% loan to value it will end up being 98.189% LTV at the end of the day. There is also a monthly FHA monthly mortgage insurance as well (two parts financed and monthly) of .85% when you put down 3.50% down payment.

The monthly roughly works out to be about 70.83 per month for every 100,000 loan you borrow.

So while there being a lot of mortgage insurance on FHA the advantages are the qualifications for income are much looser allowing you to qualify for a larger loan amount, credit requirements are much easier and much more lax such as time frames for BK's, short sales, foreclosures, lates, collections, and other derogatory credit items. FHA also has lenient calculation for alimony and counts your monthly alimony as a reduction of income unlike conventional financing which counts it as a liability (important of this can be explained later) and many more.

Conventional is cleaning in that it has better pricing and you can structure low down purchases with no monthly MI if you know how to structure your loan correctly. Its con's are stricter credit requirements, longer waiting periods for derogatory credit, more flexible options when it comes to mortgage insurance structuring, and conventional can finance investment, second homes, and primary residence while FHA is only primary residences.

Much more but its too heavy in info.. let me know if you have questions.