FHA loans in New Jersey and in all other states in the last 18 months have become the popular choice when choosing a mortgage for many different reasons. It has been stated that FHA loans now represent about 35 percent of all financing options. And because of the popularity and usage of FHA loans, there seems to be more FHA rumors or myths circulating. Let’s review some of these so-called myths.
Before I begin, just a little quick education when it comes to mortgages. You basically have 4 types of mortgage programs.
FHA loans- This type of loan can be used by anyone and not just first time homebuyers. But only when buying a primary home and not a second home or an investment property. Keep in mind, if you currently have an investment property that does have a FHA mortgage, you can refinance this under the FHA streamline program.
Conventional loans – Can be used by anyone, even if it’s for a second home or an investment property.
USDA loans – This type of loan has income restrictions and is restricted to specific areas. More info on USDA loans, aka Rural Development loans.
VA loans – Veteran loans can only be used by those that have served and or are currently serving in the U.S. military. There are specific requirements when it comes to reserves and or active duty.
FHA Rumors and FHA Myths -
- FHA loans are more expensive than Conventional loans -
I think this is my most favorite myth of them all. Sure, any mortgage program can change each year, but the basic premise is always the same. In my opinion, the main reason would be because of FHA’s upfront mortgage insurance. Technically it’s considered a closing cost, but you have the option of adding it onto your loan, so you don’t have to pay for it out of pocket. In many cases, this wouldn’t make FHA loans more expensive. You need to look at the end result. And you have to understand that conventional loans have higher penalties when it comes to your credit score and or the percentage of your down payment. You just need a good loan officer that can properly show the difference between a FHA loan and a conventional loan, even with 10 percent down.
- FHA Loans take forever -
Some state that FHA loans could take from 2 to 3 months. Keeping in mind that any loan is taking a little longer now because of all the checks and balances when it comes to the mortgage process. It just depends on the loan officer and or lender that you choose.
- FHA Origination Fees -
All FHA loans have origination fees. False. Another rumor is that FHA gets part of the origination fee. False. I actually had a borrower that was told by another loan officer that FHA got part of the origination fee. Please read : Understanding FHA origination fees
- 6 percent seller concession has been reduced to 3 percent -
FHA has talked about reducing the seller concessions over the last 18 months, but it’s still in it’s talking stages. So you can still get up to 6 percent seller help on FHA mortgages.
- FHA appraisals are more harsh than conventional appraisals -
In reality, why would anyone want to purchase a home that might need major repairs that aren’t mentioned in an appraisal. Sure, appraisers are suppose to be a little tougher when it comes to a home requiring a FHA appraisal. In many agreement of sales, there is usually some sort of cost that the seller would pick up. If the house was truly in bad shape, that type of home would be perfect for someone to do a FHA 203-k loan, which would allow you to add the cost of all repairs into the mortgage. The main reason for this rumor is mainly from those realtors that just don’t have much experience with FHA loans or because these were rumors from the 1990′s that still circulate.
- Sellers should not accept offers from a buyer that is FHA approved -
There are a few more specifics when it comes to a house being FHA approved and sometimes even sellers should get their house inspected before it goes on the market. Please read : Sellers should get their home approved also
- FHA loans are for those with bad credit -
First off, one would need to define bad credit. This is usually a key phrase for those to advertise to people who have bad credit. A good term would be, borrower’s with less than perfect credit. But overall, the base rate for a conventional loan and a FHA loan is pretty close to being the same. It just comes down to how someone sells it to you. As I mentioned above, conventional loans can be much more expensive if you have less than 30% percent down and or credit scores less than 700.
Remember : A FHA loan is not just for first time home buyers.
Summary : Overall, I just want people to be careful of such rumors or myths when shopping for mortgages in New Jersey. Checking the facts is important, because some people are just true sales people and don’t know any better. It just comes down to speaking with a very qualified loan officer who will ask the borrower about their goals and figure out what loan best fits that borrower. Sometimes a loan was done for that borrower because it was easier for the loan officer. And seriously, people need to stop listening to their friends, neighbors, family members, and some realtors that just don’t know any better. Lastly, just because you read about it online, doesn’t make it the truth.