The Mortgage Network: Brian Quigley

95% Loan with No Mortgage Insurance vs. FHA Loan

July 27, 2011
Brian Quigley

FHA has tripled their mortgage insurance premium over the last year and a half to 1.15%. On a $300,000 loan with 3.5%, you will be paying $287.50 a month for a minium of five years, which equates to $17,250. In my opinion, this is a complete waste of money for you to spending.

A much more attractive option is 95% Loan with no mortgage insurance, and upfront ways to buy out the mortgage insurance to avoid the monthly premium. The credit score for this product is a minimum of a 660, which will go up to a 45% Debt to Income Ratio. There are a couple of pricing add ons, because you are buying out the mortgage insurance, so expect a slightly higher rate.If conventional rates are 4.75%, expect a rate of about 5.375%. You are given a higher rate to absorb the mortgage insurance.

Here are some product highlights, for either purchase or refinance

  • 95% Loan with 2-3% minimum coming from the borrowers own funds. The other 2-3% can be a gift from a family member
  • Credit scores to qualify are a 660 minimum
  • Debt to Income Ratios up to 45%
  • You buy out the mortgage insurance with a slightly higher rate, also called Lender Paid Mortgage Insurance (LPMI). There is no monthly mortgage insurance

FHA loans have been red hot the last 4-5 years, however here would be the terms of your $300,000 FHA Loan. You would pay $3000 or 1% upfront mortgage insurance premium on top of your loan amount, you would be paying $287.50 a month in mortgage insurance on top of your payment, for five years minimum. As you can see, you are paying much more for an FHA loan, and in this market, it is worth it to look around, especially at the 95% Loan with no mortgage insurance. You will be able to also qualify for a more expensive home, since you are not having to add in the mortgage insurance to qualify. The only advantage with FHA is a 3.5% down payment, and you can go up to 58% Debt to Income. In my opinion, it is wiser to stick with the 95% Loan, since the terms will be more attractive.

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Brian Quigley
Hello, my name is Brian Quigley and I have been a mortgage broker in Denver, CO since 2003. I have been fortunate enough to choose this very rewarding mortgage broker career and help thousands of borrowers over the years. Customer satisfaction is important to me most, and getting my clients to the closing table smoothly. I am proficient in all types of mortgage financing including FHA/VA, Conventional, USDA, Jumbo, Portfolio, 1031 Exchanges, Reverse Mortgages, Construction loans, and FHA 203K loans.

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