FHA vs. Fannie Flex 97 for Low Down Payment Buyers

For those of you who are such industry dinosaurs that you remember how to do a FLEX 97 loan with Lender Paid Mortgage Insurance (LPMI), you’re in luck because, aside from 95% conventional with single premium financed mortgage insurance (SPMI), the time has come where this is the best high loan-to-value product for purchases. Soon, allowable seller concessions for FHA loans will be lowered from six percent to either four or three percent. When that happens, there will nearly no instance where FHA is superior to this loan product choice. 

Take a 200000 dollar purchase for a buyer with a 720 credit score, market rates and compare it side by side with a FHA transaction with market rates:

FHA Flex 97 w/LPMI
Purchase Price $200,000.00 $200,000.00
Down Payment $7,000.00 $6,000.00
Loan Amount $194,930.00 $194,000.00
P&I $955.55 $965.09
Mortgage Insurance $146.20 $0.00
Total Payment (less taxes and insurance) $1,101.75 $965.09

In this scenario, the FHA loan is more expensive on a monthly basis to the tune of $136.66. Once upon a time (2008), there weren’t mortgage insurance companies insuring 97% financing and even now, some parts of the country won’t have access to this product due to mortgage insurance companies declining markets policies but Minnesota is a green light. To check your local market pricing, declining markets and underwriting guidelines, try the following links:

  1. Radian – no declining markets – guidelines
  2. RMIC – markets and guidelines
  3. Genworth – no declining markets – guidelines
  4. United Guaranty – markets and guidelines
  5. PMI – markets and guidelines
  6. MGIC – markets and guidelines

The reign of FHA by new rules and by market forces is slowly fading away. As it does, it will be conventional products like this that take its place.

(for a description of different mortgage insurance products available for the FLEX 97, see this article)

Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFI

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