FHA loan VS Regular loan???

[Elke Mariotti]

Originally Posted by Coach1729

Hey everyone -



Is there ANY alternative to the FHA loan program if you do not have a 20% down payment? (not counting VA loans). We're looking right now and have already gone through the whole pre-approval process and have our letter from a mortgage banker recommended to us by our agent (he was very good...not complaining about him) - but I always had just assumed that we NEEDED to go FHA, and never pushed for anything nor heard about anything else, because of our down payment size. I have no reason to believe this ISN'T the case, but this thread makes it seems like while thats the most common way to go, its not necessarily set in stone.

Anyway, our agent remarked on the combo of our income + credit scores being a very good candidate for financing, but of course the down payment issue is our big bugaboo. Is FHA the ONLY option for us, or if somehow we could scrape together, say, 10% down (maybe push for seller concessions on closing costs so we could apply the $ earmarked for there into our down payment), would there be a chance to get a conventional mortgage? And then I guess the BIG question - is there any benefit to doing this??

Thanks for the help everyone - realizing its usually best to do your own research rather than rely on the people in the "business" to give you every available option - the mortgage guy actually told us there was really no reason to put down 5% instead of the minimum he needed us to (3.5%) because having the money in hand would be better than the marginally affected P+I savings, but I actually just read that PMI is different (lower by 5 bps) once you put 5% or more down on a 30 year loan - so I guess maybe I shouldn't simply go by what I hear from him??

Requests for sellers' concessions (or getting it) can backfire. Two reasons:

1. Many sellers don't want/like/understand the subject
2. It will increase the selling price for mortgage purposes and the appraisal now has to come in as "asking price PLUS concession", which can be a problem

[bg7]

You can get a conventional mortgage with 10% (but it will need PMI). But you'll still need funds for closing costs. Also, you should ask about the single lump sum payment for PMI up front. You can usually break even on that within 24 months - saves you having to pay it for 5 years (FHA) or until you get 20% equity (who knows when).

[Coach1729]

Originally Posted by Elke Mariotti

Requests for sellers' concessions (or getting it) can backfire. Two reasons:

1. Many sellers don't want/like/understand the subject
2. It will increase the selling price for mortgage purposes and the appraisal now has to come in as "asking price PLUS concession", which can be a problem

Well, yeah on number 2. Obviously it would have to be a situation where the seller's motivation to get out is greater than their motivation to recoup absolute full value, but I've been advised that we should at least ask for it if we aren't absolutely DYING to get into the home at the seller's terms (aka, ok with walking away at the end of the day).

So I guess I understand your point that requesting it could backfire in that it could be a non-starter in negotiations - but wouldn't that simply be PART of a negotiation? What I guess I don't get is how is would backfire if we got it, the second part of your comment.

To the next respondent: yeah I know I pay PMI on any loan, conventional or otherwise, under 20% - I just wasn't sure you COULD get a conventional at less than 20%. What would be the advantages of exploring that - less up front fees? Easier to get out of the PMI if I could afford to pay above the minimum monthly P+I and accelerate my amortization table (no 5 year minimum period, I presume, although I'm not sure how realistic that is anyway)?

And is the up-front PMI option only on conventional mortgages (I assume so considering the 5 year minimum period on an FHA)?

I only ask because I often see FHA loans associated with 'riskier' lendees - our down payment is low, undoubtedly, which makes us "risky" in that sense, but our income (not in and of itself, obviously, but in the sense of how it compares to what we were approved for vs. what price range we are looking at) and credit I think separates us out from your typical "FHA" lendee - but maybe I'm wrong and its not even worth exploring other options.

We have friends who are neck-deep in debt making half our salary but who got larger downpayment "gifts" from family/wedding proceeds - I just don't see how a one-time or so windfall of cash makes them less "risky" than us, I guess is my curiosity in all this.

Thanks again for the responses!!

(And yes, I know some are going to jump on the whole low down payment thing makes me more likely to run away from the whole thing if something goes bad and I anticipate a lecture on needing 100K+ saved before I consider home ownership - to which I respond, just not in the cards)

[Elke Mariotti]

Originally Posted by Coach1729

So I guess I understand your point that requesting it could backfire in that it could be a non-starter in negotiations - but wouldn't that simply be PART of a negotiation? What I guess I don't get is how is would backfire if we got it, the second part of your comment.

)

Yes, asking for a sellers concession can be part of a negotiation. I merely wanted to point out that it's not as common/acceptable as it used to be. The impression for the seller is that the buyer can barely qualify because of lack of upfront funds and once they're in contract, they'll miss out on other potential buyers - in case the contract falls through because the buyer doesn't qualify after all. Everybody is jittery these days
It's something I see out there as a Realtor.

The second part?
Example only: If you're offering $400,000 and the seller accepts but you want a sellers concession of 5%, that brings the mortgageable amount to $420,000 - the appraisal now has to come in at $420K! It basically "inflates" the value, even though the seller doesn't benefit financially.

In times of increasing property values it wasn't really a problem, but now, in a still somewhat declining market, appraisers are much more conservative and it's not uncommon for appraisals to come in UNDER the agreed upon sales price. In that case either the seller has to lower the purchase price, or the buyer increases his down payment in order to get a mortgage...

Hope this makes it a bit easier to understand.