So my wife and I are looking at moving up to a larger place. In talking with our mortgage broker, he mentioned that we qualify for an FHA home loan as our purchase price is below the cut-off line. So I'm looking to you guys for some additional guidance about the pros and cons of an FHA loan.

There are plenty of websites out there saying how great they are, just want to make sure we don't get hit with any unexpected things. We are looking at a 30-year fixed loan and would be doing more than the minimum 3.5% downpayment. So far I've seen similar rates and a little more flexibility in closing, but wanted to find out about any downsides that might not be mentioned.

 

I have an FHA fixed rate loan and I am very happy with it. The only problem I had was about 1 year ago when I got laid off, I tried to work with them to put one payment off to the end of the loan to help buy me some time and they said flat out, not going to happen!! It seemed like they would rather have me default on the loan than to work with me. So I some how got it done and stayed current.

Other than that, it has been a good deal for my wife and I.

 

Careful, FHA is heading where Fannie/Freddie was.

Not to dissuade you, just read up on FHA.

 

I don't like to say this, I don't want to sound like a jerk.

But the fact is simple: If you are not able to afford a place's payment and put down 20% of the purchase price; you cannot afford the house.

It may be the best option overall to stay put, work with what you have and really put money away for a higher down payment. That way, if something does happen, you're prepared for it. Good luck!

 

My wife and I didnt have money for a down payment when we bought our house so we ended up with an FHA loan. And I'm pleased with it. AND YES WE CAN AFFORD OUR HOUSE. We had enough money saved up to buy all our appliances new. Yes we got help from the government, but we bought a house we could afford. Cause I was not gonna live in that hole called a house ant longer. I see it as a helping hand not a hand out.

 

I would respectfully like to disagree with this. Sometimes when your renting for more than what a mortgage would be you just cant put away all that much. I am in the same boat. There are alot of down payment programs and money for free. Just check out all the options

 

I think 96-12valves comments are indeed meant with the best of intentions...I agree with him somewhat that being in that situation certainly means you can weather bad times SHOULD they occur.

Having a cushion of some kind may prove to be very valuable with the economy like it is. A lot of people who have or are losing their homes, did so because they really didn't have what they needed to get through a couple bad months.....

 

Like I said, no offense to anyone, but I was raised pretty conservative with regard to money and (especially) loans.

The Credit union I have a mortgage through won't accept less than 7.5% down, and no FHA loans. They also have pleasently floated along with little or no actual impact over this recession other than several members having to move quickly due to loosing thier jobs.

By all means - if you're trapped in a bad rental situation, you are better off getting something you actually own. That said, I purchased last August (just before everything broke loose here) and prior to that, I was in a month-to-month lease that was over $350/month less than my mortage payment is now. It got tense through the layoff period, and looking back, i wish I had held off, but things worked out and with a little planning, it's worked out fine.

 

This is the farthest from the truth. I was looking at a house where I was going to use my VA Loan, but because the total amount of the house was under the FHA threshold, it qualified for the FHA Loan program. It had significantly lower payments because the APR was much lower, and the lower closing costs and down payment allowed us to keep more money to purchase other things for the house instead. Just because they qualify for the FHA does not mean they can not afford it. To qualify for the FHA the amount of the home hs to be under a set amount. It makes no sense to put 20% down on a house if you don't have to. dropping 20k into a down payment only lowers your monthly mortgage about 100 dollars depending on the type of loan you have and amount of the house. But you drop .5% in APR and achieve the same thing, and now you have money to spend on furniture rather then putting it on your high interest credit cards.

 

Since people keep bashing my way of living, enough - have it however you want. I did my research, do your as well and work with what fits you best.

Only one thing I will offer, do check to see how much it costs to "refinance" or "modify" the loan if intrest rates drop. In my case it was $350 and no other fees, and I dropped 1.25% off the second month of the loan. My sister had to pay over $1250 for the same service, and lots of paperwork and headache.

 

20 % down gets you out of paying PMI. Also I have refinanced my conventional mortgage twice, and I have never had to pay a cent up front....any minimal fees have been rolled into the loan....no hassles at all.

 

This is a bit long winded, so please bear with me .....

My wife and I just bought in December when the market bottomed out and I knew that I was as close to the bottom as I could get. Our house started off at $229,900 .... after 8 months of being on the market we got it for $170,500. 4 beds, 2.5 baths, 2100 sq feet, and a 3 car garage on 1/4 acre. I used my VA loan and got a fixed rate with zero down at 5.5%.

I'm lucky enough to have worked with a real estate broker with one of my previous employers, so I called him and got some good advice. The 20% down is for PMI, and if you've got a good loan writer this isn't a problem when you go zero down. What he told me was is that its better to take your 20% down and use it for collateral on a signature loan, and then use the money from the loan and apply it directly to the principle of the mortgage. I know it sounds weird but do the math and it works.

Your 20% down (say in this instance $40,000 for a $200,000 mortgage) drops the loan to $160,000. You now have no cash reserve and a mortgage that will cost you about $910 a month without all the other fees and insurance.

If you go zero down, the loan is $1135 a month without the fees and insurance, but you now have $40,000 in cash that can be used for investing or the signature loan. So the monthly cost between $160k and $200k is roughly $200. You haven't saved much, and you're out $40,000.

If you drop half ($20,000) on the mortgage directly to the principle, you've now paid off almost 18 months of your loan ($20,000 divided by $1135 = 17.62) and if you do the full amount its now almost 3 years of payments.

Oh, and since it's a signature loan .... you've still got your $40k sitting in the bank or invested, and it's probably making about 3% to 6% annually if you do it right.

This is a great way to make a 30 year home loan turn into a 20 year loan and not pay for it, which is what you want anyway because you can only claim the first 20 years of the loan on your taxes. The best part is VA and FHA loans will generally NOT have any fees or penalties for early pay-off of the loan.




Kris

 

You get a signature loan, and it may knock you out of qualifying for your home loan.

 

Yep. 20% and no PMI, and can waiver escrow. My last house I had an escrow and it was nothing but grief, between the mortgage being sold at least five times and dealing with deliquent insurance and tax bills.

My current house we put down 20% and no escrow, and so far 10 years with the same lending institution. I'm a big boy, can pay my own taxes and insurance.

MikeyB

 

An 80/20 also gets out of paying for PMI and you still have the downpayment for other things. There are literally hundreds of differant types of mortgages. Some are better than others for some. Just don't jump on the first thing that seems like it is the greatest thing since sliced bread. Make sure you weigh the longterm effects of your finances.