FHA as an Option to Purchase

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During the market downturn, FHA became the darling of buyers.  It has gone thru some changes these past years and now as the credit market is easing up, there are more options that make FHA loans not as desirable.  Here are some of the reasons why:
All FHA buyers are required to get mortgage insurance (MI) no matter how large their down payment.
Currently, all FHA buyers must pay an Up Front Fee of 1.75% of the loan amount.
Most FHA buyers also must pay an MI annual fee of 1.35% of the loan amount (divided into 12 payments).
This annual MI jumps to 1.55% if the loan amount is over $625,500 and under $729,750.
The above rates apply when LTVs are at 96.5%. If LTVs drop below 95%, the MI rates drop by only 0.05%.
Most FHA Loans:
Up Front MI:     1.75%
Annual MI:        1.35%
Annual MI:        1.55% (Loan Amount above $625,500).
FHA MI is very high and permanent but necessary to insure much more flexible FHA loans that are often the only option for many borrowers.  Some of the other options making a come back are 80/10/10 loans that have no MI and the buyer is putting down 10% with a 10% interest only second. 5% conventional, but you still have to pay MI, but not the FHA fee.  This is where it becomes important to discuss your options with a mortgage broker and see what makes the most sense for you and your finances.

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