Buying A Home
anssett
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
FHA vs. conventional mortgage
I'm just beginning the research as a first time home buyer. I have fantastic credit, and we have great income, but we live in a really high cost-of-living area so if we try to save 20% for a down payment it'll be 4-5 years (a typical starter house costs 350-400K). I've been reading about FHA mortgages and the 3.5-5% down options, and I can see the additional costs of PMI, but I feel like there must be more strings. Are there secret strings? Are closing costs higher? Are the rates markedly higher? (they don't seem to be from browsing online).
We're going to sit down with a lender soon and get more specifics, but I'm curious what your experiences and opinions are. TIA.
Re: FHA vs. conventional mortgage
Beginning June 2013 PMI will remain for the whole 30 years of the mortgage. That is a great deal of extra money.
I would take the 4 years to save 20%. Take on second PT jobs, downscale your lifestyle, current rental etc. To get the 20% sooner.
Agreed with PPs. Talk to a lender or mortgage broker in your area. We live in a HCOL area as well; we're putting 10% down, taking a second mortgage for the other 10%, and avoiding PMI altogether.
PMI can be extremely expensive. If we had gone the FHA route, we would have been paying an extra $300/month for all 30 years. Crazy!
Conventional will generally (but not always) be a cheaper option. We did a conventional with 5% down and we are paying PMI. Our PMI is about half the amount we would have paid with a FHA loan and we did not have to pay any up-front PMI. Our payment is $120.month on a $250k loan and our closing costs were only $3400. I believe the estimated FHA closing costs were somewhere around $6000.
We ran the numbers on a few different loan types and the conventional was definitely best for us. If you choose a lender they can run through the estimated numbers with you to give you an idea of what would be best for you.
We also live in a HCOL area. We are putting 10% down, have great credit, and are using a conventional loan. Because of that, we had a variety of options for financing - some with PMI and some with lender-paid PMI. With LPMI, the interest rate is slightly higher. In our case, the LPMI was a better choice than us paying the PMI directly, but that was because the rates were very similar. You have to run the numbers to see what is better for your situation.
I would avoid the FHA loans if you can qualify for a conventional one given that PMI is now permanent, and some of the other issues outlined below.
Maybe it is just because I live in a lower cost-of-living area, but we got approved for a conventional loan (no mortgage insurance, 30 yr fixed rate, about 3.6%, with 3% down). Admittedly, closing costs seem high, but we didn't get preapproved anywhere else to see if they would differ at a different lender.
Your mortgage professional will be able to give you a lot more details and you might be surprised by what you get approved for!