Thursday, March 11, 2010
Regular FHA versus IHDA Programs: Which is the Best for Home Buyers?
Today I'm going to compare: Regular FHA Purchase Money versus IHDA (Illinois Housing Development Authority "IHDA DPA") Purchase Money.
A quick overview on the two loan programs: FHA is a government run home loan insurance program that allows borrowers to borrow money with low down payments (3.5% down). The IHDA program is built on an FHA first mortgage chassis but goes one step further by placing a 2nd mortgage (IHDA loan) on top of a Regular FHA loan in order to reduce the down payment requirement to 1% of purchase price.
For our comparison below I'm going to use a first time buyer with a gross monthly income of $4000, $400 a month car payment, $150 monthly credit cards, $150 monthly student loans, purchase of a single family home, 30 year fixed loan, interest rate of 5.0%, property taxes of $425 monthly, standard FHA MI, and homeowners insurance of $35 monthly.
How much home can our home buyer purchase using either a regular FHA or an IHDA DPA** program? (**down payment assistance)
1) Housing Debt to Income Ratio - Housing payment divided by gross monthly income
Regular FHA with FHA Total Score Card Approval: 44%
Using the regular FHA program, the buyer would qualify for $227,000
IHDA must keep to a hard book ratio: 31% (no exceptions)
Using the IHDA program, the buyer would qualify for $138,000
2) Total Debt to Income Ratio - All monthly credit debt plus total housing payment divided by gross monthly income
Regular FHA per FHA Total Score Card: 55%
Using the regular FHA program, the buyer would be limited to $175,000
IHDA hard book ratio: 43%
Using the IHDA program, the buyer would be limited to $100,000
Regular down payment versus assistance borrower funds to close requirement:
Regular FHA: Borrower must show in their savings or as a gift $6125 (3.5%) for a $175,000 purchase.
IHDA: Borrower must show in their savings or a gift of $1000 (1%) for a purchase of a $100,000 purchase.
Processing times: Regular FHA- 2 weeks to 30 days. IHDA - 30-45 days to have IHDA review the loan package.
Hope this comparison helps clarify things. Not all programs are the same and please be careful when discussing an "offer" or program with a borrower without critically looking at the details.
