monpetitpede

FHA vs borrowing 20% down payment for conventional from family

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Question for the knowledgable folk here:

I'm scheduled to close on my new condo on July 23rd here in Texas. The purchase contract is for $157k with $4k in closing costs paid by seller.

I have been approved for a 30-year fixed FHA loan with 3.5% down payment at 3.625% with 0 points. Up front mortgage insurance is $2600 (rolled into the loan) with $157/mo MI premium. My broker has told me that the mortgage insurance premium must be paid on an FHA loan for either at least the first 5 years or until I have at least 20% equity, regardless of whether I make a 3.5% or 20% down payment (i.e. even if I immediately have 20% equity I still have to pay mortgage insurance up front and for 5 years). Is this true?

In the eleventh hour, my mother has offered to lend me the 16.5% I would need for a 20% down payment with no fees over 10 years at 4% interest for 3 years and then 5% for 7 years. Until now, a conventional mortgage was never even on my radar. I asked my broker to compare and he quoted me 4.00% interest on a 30-year fixed conventional mortgage. He said that my credit score (735) meant a 1/8 % rate increase and that condominiums built before a certain year in Austin (1970-something?) with less than 25% down warranted another 1/8 % rate increase.

I would be paying my mother $264/mo initially and then slightly more after 3 years as opposed to the $157/mo mortgage insurance premium and reduction in principle and interest of the up front mortgage insurance premium ($2600) and 16.5% of the original FHA loan amount.

I'm in nursing because I'm admittedly terrible at math. I'm trying to figure out which one would result in the lower monthly payment and what my true savings would be going the conventional loan route.

If I kept the mortgage for 30 years I would obviously save the most, but what if I only planned on keeping the property for 10 or 15 years? Frankly, this whole process has been exhausting and I'm not thinking as clearly as I was at the beginning of the process. Luckily I can afford either one and I'm not buying outside of my means. I know I'll just be upset with myself a few years down the line if I ultimately picked the more expensive option.

Any thoughts you guys have would be appreciated.

Dave (first-time home buyer)

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.....Dave (first-time home buyer)

I grew up in Austin, the first property I purchased was a condo back in the 80's. Located in north Austin off Lamar Blvd (behind HEB). If I could have the chance to do it all over again, would of purchased a home first instead of a condo.

First - with your credit score and having money to put down, my advice is to deal directly with a leader. People use brokers when they have credit issues, less money to put down, ext,...

Check out Wells Fargo - https://www.wellsfargo.com/mortgage/rates

30-Year Fixed Conventional 3.875%

30-Year Fixed FHA 3.625%

My advice is to go for the conventional loan instead of the FHA loan, mainly due to the PMI. The $157/mo mortgage insurance premium does not get credited to you loan. Also if you get into some type of financial problems in the future, FHA loans are the least forgiving. Also the PMI doesn't drop off by itself, you have to pay for the banks appraiser (who will be very conservative), that you have to pay for the appraisal.

*** You didn't mention how much will be your maintenance fees?????

Your purchase price of $157,000, see link below. There are many homes for sale under the price what your paying for the condo.

Austin Real Estate & Austin Homes For Sale — Trulia.com

Are you thinking selling it in the future for a profit? A private home will increase faster in value, where a condo value is pretty much flat. You will have a hard time selling your condo unless you take a big loss.

;)

Edited by 2ndTimeAround

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Thanks for your response.

I went with the broker because he was one of two preferred lenders. My contract had a preferred lender addendum that the seller would pay for title if I used one of their 2 lenders. I started worker with the banker but she was extremely disorganized and after doing research found out that she was notorious for not being ready to close and failing to tell her clients about large fees.

I considered buying a house, but location was more important to me (South Congress). I can't afford a 3 br house in this area (in my specific location those start at $300k). I didn't have 20% to put down, that was the premise underlying my post.

I appreciate the listing of houses in Austin at a similar purchase price, though I've already looked. I'm in a contract and scheduled to close.

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....(South Congress). I can't afford a 3 br house in this area (in my specific location those start at $300k). I didn't have 20% to put down, that was the premise underlying my post.

....... I'm in a contract and scheduled to close.

I understand south of the river, the closer to West Lake Hills and around Zilker Park the more expensive, but the further south towards Ben White the cheaper.

Don't be scared or pushed into anything, up till your closing day you have to option of saying I found something better. The worst you would experience is the lost is the appraisal fee and any earnest money.

Don't be pushed into your loan, the rates actually dropped last week, ask your broker why your rates didn't drop? Understand when the rates drop and you end up paying the higher interest rate, the broker is making "YSP" called yield spread. You end up paying $1000's more over the lifetime of the loan. Say your speaking with a bank about a cheaper interest rate, if he doesn't drop his your going consider going to another bank.......

On a purchase once you sign the documents at the closing, the property is yours, it is important to get everything right. It is your right to be "Anal" about everything...

Say you want to see the HUD statement of all the closing costs, so there is no unexpected surprises at your closing!!!!

Again don't be pushed around.

Good Luck

:)

..

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