why FHA is an amazing product for clients

Is FHA DEAD?

With so much hoopla surrounding changes “made” to FHA over the last few months, I want to touch on a few items before I address other misconceptions.

The FHA loan is a loan that you get from a mortgage lender that is guaranteed by the Federal Housing Administration. My very first loan was an FHA loan. FHA loans have long been misunderstood by home buyers and Realtors so it is crucial it’s better understood, especially given our current circumstances.

Firstly, FHA has not changed their guidelines. However, as a response to market changes surrounding Covid-19 (see my earlier newsletter about these specific impacts), many mortgage lenders added “overlays” to the product to prevent further losses. This included much higher credit score requirements, more verified assets, and lower thresholds for debt ratio (the % of your income that you are allowed to use to qualify). The key here is that I said “many” and not “all”. As a mortgage broker, we have over 50 lenders to choose from. Some are operating with no FHA changes at all. Meanwhile, people are calling saying that they were working with another lender that told them there’s no more FHA. Unfortunately, some loan officers don’t know there are still options out there, so it isn’t their fault. FHA is indeed alive and well. Like everything else the pendulum will start to swing back in the other direction and these overlays will become a thing of the past.

Second, is a Conventional mortgage better than an FHA? 
Is a Conventional buyer better than an FHA buyer?

For years, too many to count, I have Realtors tell me they took an offer for a Conventional buyer over an FHA because they’re more qualified. I’ve had clients ask me for a Conventional pre-approval with no seller concession to help get their offer accepted. If everyone knows that FHA is easier to qualify for and less strict, doesn’t that make it inherently easier for that person to consummate the transaction?

The Comparison

Let’s review the tale of two clients. Client A has a 740 credit score, has a job paying him $75k a year, and $25,000 in the bank. He opts for an FHA loan with a 3.5% down payment, 3% interest rate, and a seller concession for closing costs to stay as liquid as possible. Client B has a 680 score, 10% down, no seller concession, makes $35k a year, and will be using all his funds to get into the new mortgage. Which one is actually the better client? The one that utilized a mortgage product to their financial advantage or the one that just had the word “Conventional” on their pre-approval letter. Which one will be in a better financial position a year from now, five years from now, ten years? Is it Client B who wiped out their entire savings to buy a home? Or Client A who retained his funds so he has a cash cushion should hard time befall him? Is this the case all the time, certainly not. The point is that the type of loan doesn’t dictate the strength of the borrower, the quality of the research in the pre-approval does.

Some quick bullet points on why FHA is an amazing product for clients:

  • Lower down payment than most Conventional mortgage products
  • Easier to qualify for with credit
  • Easier to qualify for with income
  • Fixed mortgage insurance that doesn’t vary from one lender to the next
  • Rates are almost always lower
  • Higher threshold for seller concessions (up to 6% of purchase price)
  • Flexibility with student loan debt

What’s the best loan for you or for your clients? Only one way to find out and I’m looking forward to hearing from you.

Our News

What are your 2021 home goals?

All of us here at MBA are excited about the opportunities this year will bring! You're likely already looking ahead with goals in mind. Rest assured that we're here to help you plan through all the changes and opportunities waiting for you. Ready to own? Turn your rent check into a mortgage payment. It's no secret that homeownership is the...

read more

The New Normal: A Strong Housing Market Expected to Continue into 2021

"2020 will be known for a lot of things, and a record-breaking year for real estate will certainly be one of its more unexpected legacies." —Daryl Fairweather, Economist Most of us would have expected the housing market to suffer from circumstances like a once-in-a-hundred-years pandemic and historic inventory shortages. But, rather than a...

read more

Should I pay my mortgage off early?

At the very beginning of the Covid -19 pandemic rates went drastically down based on the uncertainty in the global financial markets.  This had a harrowing effect on lenders, the direction of rates, and the stability within the U.S. economy.  At the very beginning of the Covid -19 pandemic rates went drastically down based on the uncertainty...

read more

eNewsletter Sign Up

First-time buyer? A seasoned homeowner looking to refinance? No matter where you on your journey home, SIGN UP to receive the latest news and receive our FREE Resource Guides to prepare you for success!

CONTACT TEAM HUNTON

392 S. Main St.
Athol, MA 01331

50 Elm Street, Ste 8
Worcester, MA 01609

Phone:
978-575-3053

Fax:
888-225-4341

Veteran Owned and Operated

Veteran Owned and Operated

Team Hunton - MBA Mortgage

OUR LICENSES

Massachusetts Mortgage Broker License

MB2880

New Hampshire Mortgage Broker License

11440-MBR

Maine Loan Broker License

2880

Rhode Island Loan Broker License

20072210LB

Connecticut Mortgage Broker License

MB-2880

California - DBO Finance Lenders Law License

60DBO97456

NMLS #2880

FHA Approved Broker