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Info FHA Loans


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we are in the process of buying our 1st home, which is being built out of state. the mortgage lender is steering us towards an FHA loan. I've heard mixed reviews on FHA & not sure what to believe.

For example, is it true I'd have to pay PMI for 5 years even once we've paid 20% into the loan? We think we can put down 10%-15% but not sure about 20 cuz we don't wanna entirely deplete our savings.

Is it true you can't refinane an FHA loan? Are there any other issues that we should be concerned about?

To avoid using FHA, we're considering just putting the mortgage in my name because then I could get a conventional loan & put hubby on the deed after closing. But if FHA could be a good deal for us we'll stick with it. So far the worst I've heard is the PMI for 5yrs thing I think.

Any help is appreciated & thanks! :)

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FHA is the best alternative to conventional financing. If there will not be the sufficient reserves left over (6 months PITI reserves required), or the credit may be a little lacking of conventional financing, then FHA is usually the way to go. This is not to say that maybe an 80/10/10 loan is not better, but a good mortgage broker will be able to illustrate the advantages of either situation and help the consumer to decide which is the best situation for them.

For example, is it true I'd have to pay PMI for 5 years even once we've paid 20% into the loan? We think we can put down 10%-15% but not sure about 20 cuz we don't wanna entirely deplete our savings.

On a thirty year mortgage, PMI insurance must be carried for 5 years. Another point is PMI insurance does not cancel until the loan balance reaches 78% of the original loan amount. The original loan amount is different than the appraised value calculation used on conventional financing. Strategy here would be to get the maximum loan initially and then pay off the balance after the loan has been acquired.

Is it true you can't refinane an FHA loan? Are there any other issues that we should be concerned about?

You can refinance an FHA loan as long as it benefits your situation (now that is nice, considering there are many that can twist numbers to show you a benefit, but not really benefit you at all.) You must have at least twelve months history before you can streamline refinance though. The streamline refinance benefits, in my opinion, are extremely nice. Show me 12 months on time payments, regardless of any other credit mishaps and you are good to go with a reduced rate. Cash out refinances are a different issue though. Cash out requires a full appraisal and complete credit qualification. They are also limited to 85% of appraised value.

Other benefits are they are fully assumable by a new owner, should you decide to sell. This could be very beneficial if you decide to sell your house in a few years to move on up to bigger things. With interest rates expected to rise, you would be able to offer an assumable mortgage in the 6% range long after interest rates went into the 7 or 8% range.

On the flip side of this, HUD can come in and offer assistance in dire needs (foreclosure), if conditions of being able to afford the mortgage is evident, they can borrow against PMI funds to help prevent foreclosure. This is a better alternative to them, than to pay the lender for the full difference the mortgage insurance is providing.

All I can say at this point, is if an 80/10 mortgage will not get you a lower payment overall, go with the FHA. Do compare though.

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