A Case for FHA, Seriously (Posted October 19, 2015)

Before we get into the meat of the subject, let’s review some numbers. In the Arizona market, here’s how your potential buyers break down by loan type:

• 28% qualify for Conventional loans

• 18% qualify for VA loans

Doing some simple math, that means that your pool of potential homebuyers who qualify for Conventional and VA loans is 46% of the population. That’s not necessarily a bad number – there’s an argument to be made for being selective – but if you add FHA buyers to the mix, that’s another 44% of the population. You’ve practically doubled your pool and can draw from 90% of the population here in Arizona.

Let’s look at an example of a $271,050 30-year fixed loan with a 680 credit score (average credit score in Arizona is 676):

Conventional (4.5% rate w/1.48% MI):

Monthly payment is $1,731.70

FHA (3.75% rate w/.85% MI):
Monthly payment is $1,469.24

That’s a difference of $262.46/month!

Why the difference in the rate? On Conventional loans, when the credit score drops below 700, pricing hits occur. Remember, the average credit score in Arizona is 676. Now for the arguments against FHA:

With a Conventional loan, MI eventually falls off; on FHA it doesn’t.

All true, but home buyers stay in one home for an average of just over six years – the MI won’t fall off in six years on a Conventional loan either. In those six years, with a savings of $262.46/month with the FHA option, that’s $18,897.12 in overall savings. That’s some major college fund money!

The loan limit on FHA is $271,050 – I sell houses that are much more expensive.

No argument here. That’s where being selective comes into play, of course. Food for thought, though: the average house price right now in Maricopa and Pima Counties is below that threshold. Those homes that are selling as fast as you can list them are below that threshold. You can sell four $250,000 houses in six months or you can try and sell a $1 million house in 12-18 months.

When your next client comes to you to buy a house, be the expert! Or just call us – we’ll make you look REALLY good!

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