In the one-on-one FHA training I give to the loan officers I have worked with, I always stress the importance of keeping all options on the table.  Sometimes a conventional loan is possible but it does not make sense to the borrowers.  Other times it is a great option that can be moved through underwriting very quickly (FHA underwriting is incredibly bogged down right now).  There are sure signs that your borrower is in need of an FHA loan.

If your borrower has limited funds for down-payment on a purchase transaction, FHA should be considered.  If the borrower cannot get gift funds, then FHA is a must.  With the inclusion of Downpayment Assistance Programs (DPA’s), a borrower can have the required 3% down as well as money from the DPA to help cover all their closing cost.  This provides a method for a true 100% financing loan.

If the borrower is borrowing 90-95% of the property value, you should check mortgage insurance rates to see which works out better long-term for the borrower.  Remember, in calculating this, that you not only have to consider the monthly MI from FHA but also the financed MI at the time of transaction.  On a $200k rate and term finance for even the highest FICO borrowers conventional MI on this loan range would be over $120 each month.  Taking both the monthly MI and financed MI into consideration, your FHA total MI would be around $20/month less (assuming around 6.5% on rate.  And while this might not seem like much, it will add up).

Finally, in thinking about mortgage insurance, you must remember the tightening of the market.  Not all borrowers can get mortgage insurance.  If you borrower gets decisioned as an EA-I or worse through DU (and the corresponding LP approvals), mortgage insurance cost may make the loan not affordable to the borrower.  On a similar example above, MI comes in at $200/month and the findings state that a 650 FICO may be out of their underwriting range.  Again, with FHA, the cost is just over $100/month.

There are many more reasons why a borrower would be better fit for FHA than conventional.  I have taken the time list three very common reasons and the thought behind them.  Keeping up on FHA training will help you recognize these scenarios.

To get the best FHA training for the cost, get The ABC’s of FHA Lending.

This entry was posted on Tuesday, May 20th, 2008 at 2:45 am and is filed under FHA Training - Recommended Products. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.