Most buyers today assume they have to choose FHA financing to qualify for a low down payment loan option to purchase a home. That is not the case anymore as Fannie Mae is now offering financing up to 95%. Also, there is now an option where you can choose to NOT pay monthly mortgage insurance “MI” on this 95% financing, as you can pay for “Lender Paid MI” instead, which allows you to buy out the mortgage insurance by taking a slightly higher interest rate. Because of the additional monthly savings offered by this No MI program, you can now purchase a $400k home with a 95% conventional loan for the same payment on a $350k FHA purchase.

National Mortgage Professional Magazines Top 25 “Most Connected Mortgage Professionals”

First of all,  I wanted to share some good news, as I was named in the “National Mortgage Professional Magazines top 25 “Most Connected Mortgage Professionals”. It’s always nice to be recognized for your hard work:). You can check out the article here on page 40 of 52 in the July Edition

A good sign for the market

A good sign for the real estate market is that the lenders and the mortgage insurance companies have reintroduced this 95% conventional loan product. I think we can look at these new financing options as a positive sign for our market place, as investors and mortgage insurance companies are now willing to offer these loan programs that have been unavailable for the past few years. Let’s hope for more of these positive changes.

A $400k Conventional Purchase has the same payment as a $350k FHA Purchase

Let’s look at some figures so you can see how you can purchase a $400k home for the same payment as a $350k FHA purchase. For example, here is a scenario I had with a first time buyer last week. This particular buyer wanted to purchase a single family home but they started at $400k in her area. She was told by another lender that she would have to take FHA financing to purchase at this price because she only had a minimum down payment available of 3.5%. She said she was only able to afford a $350k loan payment with FHA, which unfortunately meant she could not look at single family homes.

The buyers agent called me and asked me if there was anything we could do to help the buyer. After looking at her profile, I advised her instead of trying to qualify for 3.5% down FHA financing, she only needs to come in with a little extra down payment (by taking a small loan from her 401k) to be able to qualify for a 5% down conventional loan, and that we could also set her up with the loan option that does not pay monthly mortgage insurance either.

Here is a quick summary of the 2 loan scenarios side by side so you can see that it is the same monthly payment on a FHA $350k purchase as a $400k Conventional purchase with NO MI.

So instead of paying the expensive MI each month with FHA (loan payment on left), instead she would “buy out” the MI by taking a slightly higher interest rate at 4.75% with the 95% conventional loan (loan payment on right) & put the monthly savings towards an extra $50k in purchase price. My buyer was ecstatic because now she was able to afford the payment on a $400k purchase with this loan option!

Also, see above, because she was able to buy the larger $400k home, in 30 years with a 2% annual appreciation rate, she will have accumulated an additional $121,363 in equity or “Net Worth” from the value of this property compared to the $350k home.

A great alternative for buyers who want to purchase single family homes

I have been coming across several buyers recently who have been able to switch their search from condos to single family homes because of this loan option where they can now “buy more home” with conventional financing. We all know buyers who have had to settle to purchase condos because they assume that is all they can afford.

It sure is easier to purchase a single family home instead of a condo these days, as you do not have to deal with HUD’s minimal standards to get FHA condo financing approved (owner occupied ratios, & HOA delinquencies etc).  So it is very important to ensure that a buyer has explored all their financing options available.

Feel free to contact me directly at 858-200-9602 so we can chat about the best way to use this program to meet your specific buying goals. I look forward to chatting soon.