Posted on: 20th Jan, 2009 05:41 pm
Been reading some on the site. Alot of useful information on here. My question is this.
We want to buy a house that is 130k. We have been looking at the FHA. I am somewhat confused about the PMI. From what I have gathered, you will pay 1.5% down then .5% anually for 5 years or until you have paid 22% of the price. Then if you sell the house before ten years you will have to pay a recapture fee. I do not believe we will be in this house for ten years. Also, i have read where we will be paying more for insurance than we would with a conventional loan.
With the conventional loan, we have to have atleast 5% down. Which we will be able to get. Then we will have to pay PMI until 20% of the purchase price is reached. I am sure we will be able to qualify for a Conv loan.
I am looking for the pros and cons, considering we will be in the house less than ten years. What kind of differences will we be looking at in rates and overall costs?
Thanks
Paul
We want to buy a house that is 130k. We have been looking at the FHA. I am somewhat confused about the PMI. From what I have gathered, you will pay 1.5% down then .5% anually for 5 years or until you have paid 22% of the price. Then if you sell the house before ten years you will have to pay a recapture fee. I do not believe we will be in this house for ten years. Also, i have read where we will be paying more for insurance than we would with a conventional loan.
With the conventional loan, we have to have atleast 5% down. Which we will be able to get. Then we will have to pay PMI until 20% of the purchase price is reached. I am sure we will be able to qualify for a Conv loan.
I am looking for the pros and cons, considering we will be in the house less than ten years. What kind of differences will we be looking at in rates and overall costs?
Thanks
Paul
Hi fishforfood,
FHA loans are federal assistance mortgage loan programs which are insured by the Federal Housing Administration. These loans are mainly issued by federally qualified lenders. On the other hand, conventional loans are basically any kind of real estate loan which are not backed by the Veterans Administration or protected by the FHA. FHA loans have lower down payments and credit-qualifying guidelines.
As far as rates are concerned, you can check them out in the given link:
http://www.mortgagefit.com/rates/
Thanks.
FHA loans are federal assistance mortgage loan programs which are insured by the Federal Housing Administration. These loans are mainly issued by federally qualified lenders. On the other hand, conventional loans are basically any kind of real estate loan which are not backed by the Veterans Administration or protected by the FHA. FHA loans have lower down payments and credit-qualifying guidelines.
As far as rates are concerned, you can check them out in the given link:
http://www.mortgagefit.com/rates/
Thanks.
paul, that 22% figure hit me in the eyes. that's not accurate.
one of the keys in high ltv financing these days is your credit score. with conventional loans, unless you have a score of 740 or above, you'll be charged a fraction of a point, or more, in order to obtain 95% financing. not only that, but fewer mortgage companies are insurance such loans, and those that do charge much higher rates than previously.
with fha loans, there is an upfront mortgage insurance premium based on 1.75% of the loan amount; then there is a .55% monthly mip incorporated into your loan payment. when you sell a home, or refinance, you would be eligible for a refund of that upfront premium. i can't tell you the calculation as to the refund, but i know it exists. if the .55 exists for 5 years, that totals a little less than 3% of the overall loan amount. so...adding the 3% to the 1.75%, that comes to less than 5%. who told you 22%?
once you have your credit scores in hand, check into both possibilities and see how they shake out. you'll then be able to compare and choose the better product for you.
one of the keys in high ltv financing these days is your credit score. with conventional loans, unless you have a score of 740 or above, you'll be charged a fraction of a point, or more, in order to obtain 95% financing. not only that, but fewer mortgage companies are insurance such loans, and those that do charge much higher rates than previously.
with fha loans, there is an upfront mortgage insurance premium based on 1.75% of the loan amount; then there is a .55% monthly mip incorporated into your loan payment. when you sell a home, or refinance, you would be eligible for a refund of that upfront premium. i can't tell you the calculation as to the refund, but i know it exists. if the .55 exists for 5 years, that totals a little less than 3% of the overall loan amount. so...adding the 3% to the 1.75%, that comes to less than 5%. who told you 22%?
once you have your credit scores in hand, check into both possibilities and see how they shake out. you'll then be able to compare and choose the better product for you.
Since you mentioned 10-year recapture, I assume youre going with some state-sponsored bond program. If so, that has to do with issuance of bonds – not a FHA mandate has chunk of the change†limits.
l use the more technically correct term for FHA so as to ease the reading. MIP for FHA; MI for conventional.
MI rate for the initial 10 years (as well as the balance thereafter of MI life albeit at a lower rate) is calculated on INITIAL LOAN AMOUNT. Usually, there are declining anniversary rates but few, if any, lenders use them; administrative nightmare.
Monthly MIP is calculated on the average SCHEDULED loan balance of the BASE LOAN amount.
So the monthly rates are only fuzzily comparable. The 22% (or the more familiar to LOs, 78%) really applied to both. Yes, 20% will work with conventional but youll likely need to pay for an appraisal. So why are you concerned about automatic cancelation at 78% if you intend to be in the property less than 10 years? 78% is 12 or 13 years away depending on interest rate! Then it occurred to me that you must be intending to make additional principal payments; only rational conclusion. Here FHA picks up an advantage cancelation (after 5 years) is based on ACTUAL rather than scheduled balance (but remember monthly is still based on scheduled).
l use the more technically correct term for FHA so as to ease the reading. MIP for FHA; MI for conventional.
MI rate for the initial 10 years (as well as the balance thereafter of MI life albeit at a lower rate) is calculated on INITIAL LOAN AMOUNT. Usually, there are declining anniversary rates but few, if any, lenders use them; administrative nightmare.
Monthly MIP is calculated on the average SCHEDULED loan balance of the BASE LOAN amount.
So the monthly rates are only fuzzily comparable. The 22% (or the more familiar to LOs, 78%) really applied to both. Yes, 20% will work with conventional but youll likely need to pay for an appraisal. So why are you concerned about automatic cancelation at 78% if you intend to be in the property less than 10 years? 78% is 12 or 13 years away depending on interest rate! Then it occurred to me that you must be intending to make additional principal payments; only rational conclusion. Here FHA picks up an advantage cancelation (after 5 years) is based on ACTUAL rather than scheduled balance (but remember monthly is still based on scheduled).
FHA would be your best bet