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F.H.A vs. Conventional loans, and why FHA will become more popular for home buyers

Posted on February 26, 2009 by Ray Williams (NMLS #216267).

In the last few months we have constantly seen the grind of conventional mortgage insurance companies tightening their belts. Awhile back we saw the elimination of mortgage insurance for investment properties, which led to the 20% down payment requirement for investment properties. Then we have seen conventional loan programs require you have a 680 to put down 3%, then 5% down.

Now we have just seen 5 of the mortgage insurance companies left require you have a 700 or better credit score to be eligible for mortgage insurance, and with that you will have to put 10% down. So as it stands I would expect that soon we will see mortgage insurance on primary residences come to a crawl as well.

This will put us back to the model of 20% down on conventional loans. Or with great credit you may be able to get a first mortgage at 80% and a second at 10% with a 10% down payment (which gets you around mortgage insurance). And if you don’t have it, then you will be left with 3.5% down and going F.H.A or VA on your home loan. Not that , that is too bad of an option as we are still seeing 5% rates for F.H.A and VA loans today.

I don’t feel this will be a permanent position for primary home loans, but for quite a while until the mortgage insurance companies stop bleeding money from foreclosure claims.

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