The FHA loan program had been the loan of choice in Orange County, CA after the mortgage collapse in 2008. With Conventional and non-Conventional loan programs that allowed for small (or $0) down payments quickly disappearing, FHA stepped up. Not only did FHA increase the loan limit in Orange County to as high as $729,750 at one point, but also left the annual mortgage insurance premiums very low at .5%. But then, in 2010, FHA began to increase the annual mortgage insurance premiums. First to .55% in April 2010, then .9% in October 2010, then 1.15% in April 2011, 1.25% in June 2011, and finally to 1.35% in April 2013. At the same time Conventional loan programs (Fannie Mae and Freddie Mac) began to come back into the market with viable low down payment programs. But in 2015 FHA has made a move that once again makes it a very competitive loan program.
FHA Lowers Annual Mortgage Insurance Premiums in 2015
President Obama made the initial announcement on January 7, 2015. and FHA sent the official Mortgagee Letter out soon after announcing that effective with new FHA case numbers pulled on or after January 26, 2015, the Annual Mortgage Insurance Premium would drop by .5%, down to .85%. This is a huge drop. A $400,000 FHA loan would have a lower monthly mortgage insurance payment by approximately $166. On a $400,000 FHA loan at 1.35% MIP the old mortgage insurance payment would have been approximately $450 per month. At .85% MIP the mortgage insurance payment drops to approximately $283.
FHA May Be The Best Choice
There was a great article in the LA Times titled "An FHA loan may be a good choice". which does a good job of spelling out the advantages an FHA loan may have over Conventional financing. For example, FHA is more flexible than Conventional underwriting when it comes to debt to income ratios. Someone who is trying to push the debt to income ratios above 45% will most likely need to go with an FHA loan. (and for a Veteran, nothing beats the VA loan program.) Also, for someone whose FICO score is under 720 or had a bankruptcy less than 4 years ago and more than two years ago, FHA may be the best choice. FHA also has a shorter waiting period after a foreclosure or short sale than standard Conventional requirements. The lower the FICO score the more it makes sense to choose FHA.
There are also times when Conventional may be the best option, even if the payment is higher than FHA. For someone looking to buy a condo in Orange County, it will be easier to get financing using a Conventional program than FHA. For a condo to be financed with an FHA loan, the condo project must be on the FHA approved list. The FHA condo approval list is fairly slim. For example, as of this writing there are only 10 FHA approved projects in the city of Mission Viejo. Costa Mesa also has 10. Aliso Viejo lists 20 approved projects. While it is possible to limit an FHA borrowers search to only those condo projects that are FHA approved, the search can be opened up quite a bit if Conventional financing options are available.
How to Does an Orange County Home Buyer Know Which Program is Best?
With mortgage programs constantly changing, it is important for potential home buyers to talk to an Orange County Home Loan Specialist who can quickly gather enough information from the initial contact to put together custom loan scenarios, along with a Side by Side Total Cost Analysis comparing several loan programs. A Side by Side Analysis will help the buyer determine which program (FHA, Conventional, VA, etc) fits best in with their short and long term financial goals. Financing a home will be the biggest financial decision most people will ever make. Making sure you are making an educated decision is extremely important.
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyFHAExpert.com. I will prepare custom FHA and Conventional loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.