FHA mortgage financing offers the benefits of low interest rates, relatively liberal underwriting guidelines and low down payment requirements. Sometimes, however, FHA financing is not the best option for a home buyer.
One of the biggest drawbacks to FHA financing is the expensive mortgage insurance charged to borrowers. In addition to being charged an upfront 1% mortgage insurance premium, the borrower is also required to pay an annual insurance premium for many years. The cost of the FHA annual premium on a 30 year mortgage and a loan to value of 95% or greater is 1.15%. A borrower who is approved for a mortgage loan at 4% is effectively paying 5.15% when taking the annual insurance charge into account.
Home Buying
One large bank is now offering a unique First Time Home Buyers Program that can be less costly to homeowners when compared to FHA financing. The details and qualifications of this non FHA mortgage program are detailed below.
- Borrowers are allowed to borrow up to 85% of the purchase price.
- No mortgage insurance is charged to the borrower, resulting in a lower monthly payment. By comparison, both conventional and FHA mortgage programs require that the borrower pay mortgage insurance if the loan to value exceeds 80%.
- Many first time homebuyers have difficulty saving up a 15% down payment. However, this program allows the borrower to make the entire down payment from gift funds from family. In addition, the down payment can be borrowed against other customer assets. If, for example, the home buyer has stocks or other investments that he does not want to liquidate, the borrower is allowed to borrow against those assets and use the proceeds for the down payment.
- Seller concessions of up to 3% are allowed which effectively reduces the amount of cash required from the home buyer.
- The maximum loan sized allowed is up to $800,000 which exceeds the FHA loan limit in most cases.
The home buyer program described above is being offered by US Bank, the fifth largest commercial bank in the United States. US Bank conducts direct mortgage lending and also accepts mortgage applications from thousands of mortgage brokers throughout the country.
A first time home buyer able to meet the criteria of the US Bank mortgage program may wind up with a lower monthly payment compared to FHA mortgage financing since the borrower would not have to pay mortgage insurance. A potential first time home buyer who feels that he may be qualified for the US Bank mortgage program should ask his lender to conduct an analysis to determine which mortgage program results in a lower monthly payment.