Your Credit Score

In today's mortgage market your credit score is extremely important. I am sure that you have heard that low down payment loans are not even possible unless you go FHA. That is not true. A person with a solid credit score (740 or better) can still purchase a home at the prevailing low 30-year rate with just 5% down.

Why is this important? Well, many lenders are steering their borrowers to FHA, which is a government backed loan. FHA has established the maximum loan for a purchase at $271,050. FHA has a system by which they have identified geographical areas where this amount can be exceeded. For instance, they allow purchase loans up to $353,750 in the Orlando, FL area and up to $387,500 in the Jacksonville, FL area.

You can find the limit for your area at https://entp.hud.gov/idapp/html/hicostlook.cfm.

FHA allows a maximum mortgage amount of 97.75% of the lower of the purchase price or the appraised value. However, you must pay an upfront mortgage insurance premium of 1.75%. This premium is not refunded if you sell. You can receive a partial refund if you should refinance anytime during the first three years, however the credit is applied to the new upfront premium required and not refunded directly to you.

Finally, you need to know that you will be required to pay 0.55% of the original loan amount in annual FHA mortgage insurance premium, which is divided by 12 and paid monthly with your loan payment.

Contrast this scenario with a person who borrowers 95% and pays an upfront mortgage insurance premium of only 1.25% and then pays only 0.13% of the original loan amount in an annual premium. This can be done on any conventional loan in which the loan amount amount does not exceed $417,000.

So if you have good credit, you can still buy that nicer house now at a low 30-year fixed rate!