FHA Loans Vs. Fannie Mae & Freddie Mac Conforming Loans

Date March 20, 2008

 FHA loans are fast becoming an excellent option again.  The FHA was created in reaction to the crash back in the 1930’s.  The FHA was created to help bail out the extreme housing crunch of the Great Depression, and once again it is poised to help stabilize the mortgage and housing industry over the next 24 months.  I will be talking a lot about FHA loans in the coming months.  For many borrowers, they will be the ticket to home ownership.  For others, they will help to preserve ownership through refinance.  Why such a buzz over FHA loans, aren’t they just like every other loan out there?

The answer to that is a resounding no.  In the crazy lending world leading up to our current situation, there were so many liberal programs available that FHA loans became much less common, especially in the high cost housing markets such as California.  100% financing, stated income loans, 80/20 loans not requiring mortgage insurance and greatly expanded credit requirements trumped what the FHA loans could offer.  That loose lending is now in the past, and FHA loans are once again some of the best options available.

Some of the advantages that FHA loans offer have to do with down payment requirements and allowable seller contributions.  Most conforming loans today are requiring 10% down.  FHA loans can require as little as 3% down, with legislation in the works that can potentially reduce that to 1.5% down (HR 1852, I’ll be keeping tabs on that bill).  Additionally, FHA loans allow up to 6% seller contributions to closing costs.  Most conventional loans cap out at 3% these days. 

Another big plus is gift down payments.  Conventional loans typically are not going to allow 100% of the down payment to be gift funds (unless you are putting at least 20% down).  FHA loans, on the other hand, do allow gift money to be used as the full down payment.  Another upside to FHA loans is that they are offering the maximum financing by guidelines even in distressed markets.  Most conventional loans are reducing the maximum financing allowed by 5% in distressed markets these days.

Some other advantages of FHA loans have to do with qualifying for the loan.  Conventional loans do not allow for co-signers or co-borrowers on owner occupied homes if they are not going to live in the property.  FHA loans, however, do allow for non owner occupied co-borrowers.  If a borrower cannot qualify for the loan, their mother, father, sister, etc. can go on the loan as a co-borrower, even if they do not intend to occupy the property.  This doesn’t sound like much, but in high cost areas such as California, it can be tough to take on a home loan for the first time without help from family.

Additionally, FHA loans do not have a reserve requirement.  Most conventional loans require at least 2 months of documented reserves.  FHA loans even have looser standards when it comes to credit scores.  you can obtain an FHA loan with a credit score as low as 600 without getting hit with adjustments.  Fannie Mae and Freddie Mac currently have adjustments to pricing with a credit score below 680, and those adjustments are set to creep higher this summer, hitting borrowers with credit below 720.

If you would like to discuss your California home loan options, or would like more information about how an FHA loan may be able to help you, please contact me today.  I’m more than happy to discuss your situation and help put together a game plan for you, whether it is a refinance or a purchase transaction.

Check back in often, I will be keeping tabs on the HR 1852 bill, and will be discussing FHA loans in greater detail in the coming days and months.

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Category Posted in FHA loans

3 Responses to “FHA Loans Vs. Fannie Mae & Freddie Mac Conforming Loans”

  1. fha loan said:

    March 31st, 2008 at 4:04 am

    […] to gain the most knowledge about FHA Loans and other types of mortgages.www.fhasecurehomeloans.comFHA Loans Vs. Fannie Mae &amp Freddie Mac Conforming LoansFHA loans and an overview of FHA loan requirements. Also looks at advantages of FHA loans over other […]

  2. patricia raquel said:

    May 12th, 2008 at 11:11 am

    I would like to know the diference betrween FHA and Fannie Mae and Freddi Mac loans. I’m still very unclear.

    thank you,

    Patricia Raquel

  3. Chris Goulart said:

    May 13th, 2008 at 1:43 pm

    FHA loans are guaranteed loans, Fannie Mae and Freddie Mac loans are not. FHA loans also have some guidelines that are not as strict, along with some nifty qualification tools that Fannie and Freddie do not have.

    An example of this is FHA loans will allow for a non owner occupant co-borrower on the loan. So if a borrower does not qualify with their income, but their mother is willing to go on the loan with them, you can use the mother’s income to help qualify.

    Being guaranteed through FHA makes the loans more attractive to investors. This helps with the liquidity issues that loans in general are having right now, and also allows for a buyer to purchase a home with less money down than many conforming programs offer.

    Hopefully this helps, feel free to contact me for more information.