To do an FHA or Not to do and FHA

Should you use an FHA loan for your next mortgage? This is an important question that has become quite prevalent over the past 12 - 18 months.

Because lenders have become more strict with their guidelines the government backed FHA loans have become more popular. FHA loans allow the customer to borrow a higher loan to value(loan amount/home value) than conventional/conforming loans. FHA will also accept much lower credit scores than conforming loans will allow.

FHA willl allow you to go up to 97.75% for a refinance and up to 96.5% for a purchase with a credit score of 620 or higher. Some companies will allow lower scores, but their are not many left. A conforming loan will allow 95% for a refinance and as high as 97% for a purchse - though it is rare. But the conforming loan will reduce these loan to values by 5% if you are in a declining market. Who is NOT in a declining market??

Also to be able to qualify for mortgage insurance on a conforming loan you must have a credit score over 680, and over 720 to go over 90% loan to value. To sum up here - if you need a loan to value of over 90% and you have a credit score below 720 then you must go with an FHA loan. If you need a loan to value over 80% and you have a credit score of 680 or lower then you must go with an FHA loan.

Before you decide on the FHA loan make sure your loan amunt meets FHA guidelines. Visit: https://entp.hud.gov/idapp/html/hicostlook.cfm to verify that you are within your county's loan limits. There are some differences with costs on these two types of loans and I will be going over those tomorrow.

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