Cost Comparison Part 3: FHA Mortgages
Posted Wed, 2010-02-24 10:49 by Emily Caryl
This is the third of five posts discussing the costs of obtaining a low down payment mortgage. You can also read the entire post here.
Option 3: FHA Mortgage
The FHA mortgage is an excellent option for most borrowers. There are no restrictions on income, status as a veteran, or property location. Qualifying guidelines are also generally more lenient than conforming programs.
FHA requires a down payment of 3.5%. Interest rates are competitive. FHA currently requires a 1.75% up-front mortgage insurance fee to be paid at closing on purchase transactions. That fee will increase to 2.25% on April 5, 2010. The up-front mortgage insurance fee may be financed into the loan.
FHA also has a monthly mortgage insurance requirement. That requirement is currently .55% of the loan amount for most loans (those with terms greater than 15 years and down payments of less than 5%). Monthly mortgage insurance costs are added to the borrower's regular monthly payment.
Closing costs for FHA loans may be paid by the borrower or by the seller of the property. Currently, sellers may not pay closing costs in excess of 6% of the purchase price. Closing costs may not be financed on purchase transactions.
*Crunching The Numbers: All calculations presume a fixed rate mortgage with a 30 year term, purchase transaction, owner occupied, 700 credit score, single family detached residence, located in Jefferson County, Washington. USDA GRH example includes interest rate of 4.75%, APR of 5.088%, and guarantee fee of 2% financed into the loan. VA example includes interest rate of 4.75%, APR of 5.049%, and funding fee of 2.15% financed into the loan (the fee for regular military; first time use). FHA example includes interest rate of 4.75%, APR of 5.330%, up-front MIP of 2.25% financed into the loan and monthly MI of .55%. Conventional example includes interest rate of 5.125%, APR of 5.693%, and monthly MI of .98%. All examples include estimate of $600/year for hazard insurance and $2,400/year for property taxes. Cost comparison includes monthly MI payments for 60 months. Loan balance assumes all payments were made on time and no additional amounts were paid towards principal. Calculations do not include closing costs or pre-paids. All interest rates quoted were available on February 11, 2010.
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