FHA Home Loan

[CatsBy90_rivals30112]

Has anyone ever considered a first time buyer home loan insured by the FHA? I'll be looking to buy in the next couple years and am wondering if it would be wise to pursue this type of loan. I've got an excellent credit rating so wouldn't have a problem getting a conventional loan, but it's going to take longer to get that kind of cash.

It'd be nice to be able to buy with only 3.5% down, but I wonder if it will be worth it being that I'd have to pay PMI on the loan. I'm starting to think I'd be better off just waiting until I have enough to put ~20% down. Anyone have experience with this?

 

[Ribsandwhitebread]

Purchase with FHA if thats all you can do right now. Pay your mortgage and as much additional payment as you can afford, then refinance it with a low fee refi to get rid of pmi.

Thats certainly not an expert way to buy a house- but its what i did with my first home.

 

[ukwildcat2004]

There is a USDA loan option as well.

 

[BlueRaider22]

CC has good advice. That's what we did as well.


There's also different ways to pay the loan. Some companies allow you to pay bi-monthly. This can save you a fortune. Another way is to plan on making another mortgage payment per yr. This can save you a ton.

Also, be smart with your money. Dont get a large 30 yr loan at the top of your budget just because you can. Life is a marathon....so don't pace yourself too quick out of the gate. Remember as a first time home buyer you'll probably have to buy a lawnmower, appliances, furniture, and maintenance expenses. Not to mention school loans, credit cards, etc. Try for a 15 yr modest payment home first.....even if you have to sacrifice a few things. Be smart with the type of home. Think of it as an investment. Buying a trailer in the middle of a bad neighborhood won't get your money back. But a fair home in a good neighborhood can make you money.

Plan on living in your home for a while. I've read that if you plan on living in one place for more than 5-7 yrs then buying is the better option because you have time to build equity in most cases. If you're thinking <5 yrs it may be best to rent and save.

 

[GLR5555]

VA here. No PMI.

 

[BankerCat12]

FHA is a miserable product. The MI stays on there for the life of the loan. Since this will be your first house, you might not stay in it for that long but you can never predict the future. Save the other 1.5% and put 5% down and get conventional financing. This way, the MI will eventually fall off. There is also financing with just 3% down but the rate is typically bumped .25% and the monthly MI is also increased.

Obviously the more you put down the better but I would not offer an FHA loan to my worst enemy unless it was the last option. A lender will sell you hard on it b/c they make more money on the FHA loan. Just my two cents.

 

[LineSkiCat14]

@BankerCat12 Quick question on that. I'm in a similar situation as OP, although I'm about 1 year out of buying a house, and will most likely be a multi-family unit for passive income. I know that has it's own stipulations, but how can you only do 5% down on conventional financing? I was under the impression you gotta have 10% minimum?

I've read about FHA here and there, and it just seems like a ton of hoopla. PMI, making sure the house is approved, and many say it's just not a smart decision to make such a big purchase with only 3.5% down. So I'm looking to get to 10% myself Or maybe even up to 20%, which proves to my self (and the banks) that I can save money and my Mortgage payments won't be so bad. I just feel uneasy putting only 3.5% down.. I think it gets a lot of people into trouble, having too high of payments and a house they can't afford.

 

[catsfanbgky]

Well I am not Banker Cat, but even if you have more down payment down, it will not stop people from buying more house than they can afford. A lot of people try to keep up with the Jone's and bite off more than they can chew. If he only has the 3.5%, simple, buy a house you can afford, down payment has little to do with over spending.

I suggest meeting with a banker, tell him what you have, your budget, and he can crunch numbers and tell you how much you can borrow to fit your payment. get pre approved financing line up, that way you hold the cards when dealing with a realtor, if he knows you are good to go and what you can spend, it will cut out a lot of the jerking around SOME realtors may do. By from a listing agent, if he gets the full commission and not have to split with listing realtor, he can and lots of times will, cut commission to make a deal work. Also do not go with a stud, superstar realtor, get someone hungry. The big dogs have lots of stuff flying, he may put you on the back burner for the smaller commission he may get as opposed to a $300-$400k sale.

 

[LineSkiCat14]

I like to think I'm level-headed enough to tame my overspending. I've only made a bad buy in my life and am very money conscious. But I'm sure the temptations will be there. The trick is finding a two-family or three-family that works for my income and the plan is to move out of there after a few years into my own home to start a family, and have that house as income property. Again, lots of moving parts in that plan and a millions ways it fails. But it's the goal for now.. and while I get there, I'm just socking away as much money as I can. Again, I wouldn't feel safe putting less than 10% down, personally.

Thanks for the tips, though! One of my preliminary steps is as you said: meet with a banker or mortgage guy to figure out what I can and can't do.

 

[BankerCat12]

@BankerCat12 Quick question on that. I'm in a similar situation as OP, although I'm about 1 year out of buying a house, and will most likely be a multi-family unit for passive income. I know that has it's own stipulations, but how can you only do 5% down on conventional financing? I was under the impression you gotta have 10% minimum?

I've read about FHA here and there, and it just seems like a ton of hoopla. PMI, making sure the house is approved, and many say it's just not a smart decision to make such a big purchase with only 3.5% down. So I'm looking to get to 10% myself Or maybe even up to 20%, which proves to my self (and the banks) that I can save money and my Mortgage payments won't be so bad. I just feel uneasy putting only 3.5% down.. I think it gets a lot of people into trouble, having too high of payments and a house they can't afford.

Lineski,

Thats awesome. I have a client that bought a duplex as his 1st residence a year ago and has already bought a new SFR since he could make more money renting both units on the duplex. Hopefully you can do the same down the road and keep it as an investment property.

Guidelines require at least 5% down for conventional financing on a SFR. A duplex sometimes has different requirements as some lender policies can slightly differ. I would have to check the minimum downpayment on a duplex before I could say for sure you only need 5% down.

If you can put 10% down, you might be able to find a bank (hopefully your current one or you need to change) that would allow you to finance 80% on the 1st mortgage, 10% on an equity line or fixed rate term as a 2nd mortgage and you bring 10% to the table. 80/10/10 is the term. Banks got away from it in 2008 but some are becoming more aggressive again. This gets you around the monthly MI payment.

Hope this helps. If you are in Louisville or a surrounding county, more than happy to meet with you.

 

[812scottj]

FHA is for poors. Pay cash like the rest of us.

 

[LordEgg_rivals16573]

nothing a meth lab can't fix in six-twelve months.

 

[jtrue28]

If you're poor enough for an FHA loan, than this should help you as well, if you go the route of PMI:

See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums.

 

[Kennedy_UK]

Avoid a FHA mortgage at ALL costs. If 3.5% down is all you can afford, save and try to get that to 5%. For non-jumbo loans, a lot of banks are beginning to offer 95/5 loans without PMI. I was even able to find banks that would do a 95/5 on a jumbo loan a couple months ago.

The FHA's MPI is a killer. Seriously....Do. Not. Do. It.

 

[MWes11]

I am currently looking to Refi as well. I have an FHA right now, looking to go to a conventional loan to get rid of the PMI and reduce the monthly mortgage.

 

[CatsBy90_rivals30112]

Avoid a FHA mortgage at ALL costs. If 3.5% down is all you can afford, save and try to get that to 5%. For non-jumbo loans, a lot of banks are beginning to offer 95/5 loans without PMI. I was even able to find banks that would do a 95/5 on a jumbo loan a couple months ago.

The FHA's MPI is a killer. Seriously....Do. Not. Do. It.

How does a 95/5 work?

 

[Kennedy_UK]

It's actually a 80/15/5, sorry. 80% first mortgage, 15% second mortgage (usually labelled a home equity loan based on prime + 1.25%), 5% down.