In recent years we have seen a large shift in the market toward FHA lending as most borrowers with small down payments had little to no options on the conventional side. However, the tide has been turning recently as many Private Mortgage Insurance companies have gotten back in the game and now offer qualified buyers many options that are better and less complicated than FHA.
FHA has always and continues to be the best option for borrowers with less than perfect credit and low credit scores. These borrowers will still find conventional financing more difficult because conventional financing options for these borrowers either is non-existent or so expensive that it is cost prohibitive.
FHA allows gifts for down payments and overall more flexibility with credit blemishes. The combination of the two is enough to open doors for many would be homeowners. However, FHA mortgage insurance costs are substantially higher than what they were previously. This has negatively impacted monthly payments and can have a negative impact on a buyer’s monthly budget.
Conventional PMI Benefits
There is a misconception in the market place that many of the PMI companies do not approve loans or do not offer PMI on loans with smaller down payments. Many of the PMI companies have expanded their guidelines and introduced different premium options for increased flexibility. Most PMI companies now offer options with down payments as low as 5% vs. FHA’s 3.5% cash investment. The cash investment needs to be from the borrowers own funds, not a gift.
Unlike the Government FHA program, Private Mortgage Insurance is available from a number of companies. Because there are numerous providers, the options can vary from one company to another. However, the number of options available is greater than the one size fits all approach offered by FHA. If the borrower has a high credit score, the PMI can be significantly lower than FHA.
In addition, unlike FHA which has both an upfront premium and a monthly mortgage insurance premium (MIP), conventional PMI has multiple premium options (Single Premium, Lender Paid Premium or Monthly Option) to assist clients in achieving their desired monthly payment. Some options allow for no monthly mortgage insurance premium at all!
As an experienced mortgage lender, I keep myself in tune with all of the different options and ways to structure a loan to make sure that your clients get the best loan structure for their situation. Don’t hesitate to call me for details on how I can best assist you.