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Old 05-03-2015, 07:26 PM
 
176 posts, read 133,081 times
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Hello All, I am in a tricky situation and desperate need of advice.

Here is what I am looking to buy.

* 300K house with minimal downpayment and closing costs. Both should be less than or equal to 21K.

I have been offered many financial products.

1. FHA loan with 3.5% down and no origination fee, no points, lender paid closing credits etc...
This brings my closing cost to less than 10,000$ (Very attractive). Also interest rate is 3.75%.
Obviously upfront mortgage is around 5000k and PMI is 180 per month.
The monthly installment is around 1800$.

2. The other one is LPMI promised by broker (not approved by lender) that has 4.125% interest rate.
I put 5% down. No PMI, no upfront mortgage insurance. My monthly installment comes to around 1700$.

My strategy was on going FHA route first and then to refinance it with conventional loan when the conventional loan rates drop sometime in the future (however unlikely, I believe market will be flush with cash as economy recovers further and hence lower interest rate).

The reason for the above strategy was because of very good (less) total interest, I would be paying on FHA vs LPMI loan when I minimize the monthly PMI paid by refinancing it out as soon as I can.

Is there something wrong in this strategy?

I cannot pay 20% down on conventional loan and get the best interest rate. With 5% down on conventional the interest offered is 4.5% which makes total interest paid ugly.

Please comment and advise.
Thanks,
Yellow Jacket
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Old 05-04-2015, 03:37 AM
 
6,360 posts, read 7,333,983 times
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No mortgage on your house will make you wealthy, regardless of the interest rate. It's an obligation that you need to pay.
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Old 05-04-2015, 05:27 AM
 
Location: Southern California
4,350 posts, read 4,937,863 times
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As the economy improved rates should go up.
If you know you want to refi out of FHA why not use an ARM pay extra and build equity faster.
BPMI should be between FHA an LPMI. If you have excellent credit pmi, might not be too bad.
There is also SFPMI. If you pay extra monthly you'll have paid off the insurance but your payment won't drop and you end up paying off the loan sooner.

It comes down to picking your poison.
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Old 05-04-2015, 06:33 AM
 
Location: NC
6,081 posts, read 7,038,837 times
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There is something called an amortization schedule that can be produced by some of the online mortgage calculators. After every payment it tells you how much you have paid to date and how much is interest and how much is principal. So, look at one of these tables. Then add the cost of PMI every month, if you have it, to the 'interest' amount (even though it is not interest it is money down the tubes). Now look at the month when you plan to sell the house, and figure out how much you will have paid in interest and PMI. The situation with the lowest number is best! Try the calculator at bankrate.

The amount going to principal is theoretically recaptured when you sell you house, so it is on the good side of the balance sheet.
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Old 05-04-2015, 09:04 AM
 
176 posts, read 133,081 times
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Quote:
Originally Posted by jackmichigan View Post
No mortgage on your house will make you wealthy, regardless of the interest rate. It's an obligation that you need to pay.
Thanks the title was just to attract attention, but the contents of my questions is much more intricate.
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Old 05-04-2015, 12:18 PM
 
Location: New York
2,251 posts, read 4,163,764 times
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Quote:
Originally Posted by jackmichigan View Post
...Best Mortgage To Make You Wealthy .. No mortgage on your house will make you wealthy, regardless of the interest rate. It's an obligation that you need to pay.
Agree with Jacks posting. It contradicts itself because you are paying on a debt, not saving your money. You are looking for an easy way to get rich quick, many have tried this with real estate and lost. Who are the winners, the banks because the amount they have made in interest.

A major factor you are not considering is the value, and what the property will appreciate for when you sell. Short off keeping an investment property for rental income.

If you are looking for ways to become wealthy - learn money management.

Look at ways you will spend to least amount. A mortgage with two scenarios - how long would it take you to save up enough for a 20% down payment to get a conventional (better) than. Compared to not saving and trying to qualify for a FHA (bad loan) with a higher payment. Also how much that could be saved by paying more than the regular payment.

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Old 05-04-2015, 02:59 PM
 
176 posts, read 133,081 times
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@Modification Specialist,

Well again the title of the thread was just to attract attention. May be it was not a good idea on my part. As per your last comment on FHA - sure it IS a bad loan. However it is a no brainer for first time home buyers without ton of savings.

FHA doesnt look that bad if you recognize that you can refinance it into conventional loan at later point. The only problem is the upfront insurance premium + interest on that and there is no getting around that.

But yeah I generally agree with you - mortgages are bad deal in general.
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Old 05-04-2015, 03:46 PM
 
Location: Denver CO
19,043 posts, read 10,066,076 times
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Quote:
Originally Posted by YelloJacket View Post
@Modification Specialist,

Well again the title of the thread was just to attract attention. May be it was not a good idea on my part. As per your last comment on FHA - sure it IS a bad loan. However it is a no brainer for first time home buyers without ton of savings.

FHA doesnt look that bad if you recognize that you can refinance it into conventional loan at later point. The only problem is the upfront insurance premium + interest on that and there is no getting around that.

But yeah I generally agree with you - mortgages are bad deal in general.

Well then feel free to save up until you have $300,000 in cash to buy a house, instead of wanting to buy one without enough money for a 20% down payment and closing costs.
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Old 05-04-2015, 04:17 PM
 
176 posts, read 133,081 times
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Quote:
Originally Posted by emm74 View Post
Well then feel free to save up until you have $300,000 in cash to buy a house, instead of wanting to buy one without enough money for a 20% down payment and closing costs.
Well I cant blame the lenders for charging 150K$ interest on 300k$ mortgage for 30 yrs - but I still cant help the bad feeling about how hard they make it to contribute extra payment to principle and reduce the burden of interest.

Plus

PMI + FHA Upfront is eccentric - If they deem you as a risky borrower, then why take the risk and lend at all? For high credit worthy borrowers who want to make little downpayment like me it is particularly harsh. Here's why:

1. FHA socializes subprime default in the form of increased mortgage insurance.
High credit worthy borrowers like me foot the bill.

2. Banks make profit off of my 'credit worthiness' => I will pay Prin+Interest on time.

Basically high credit worthy borrower is forced to participate in a sinister socialization campaign where he pays his hard earned wealth for a sloppy sub-prime defaulter.
This is the kind of thing that Robin Hood did - not what FHA should do.

So Comprende? FHA is a bad deal.


I guess its noteworthy to mention that the mortgage borrower who is victimized the most, is the one with high credit worthiness who cannot come up with big downpayment -- I unfortunately fix exactly into this description.

Sorry I am sounding arrogant today, but PMI is getting onto my raw nerves
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Old 05-04-2015, 04:23 PM
 
Location: Denver CO
19,043 posts, read 10,066,076 times
Reputation: 27811
Quote:
Originally Posted by YelloJacket View Post
Well I cant blame the lenders for charging 150$ interest on 300k$ mortgage for 30 yrs - but I still cant help the bad feeling about how hard they make it to contribute extra payment to principle and reduce the burden of interest.

Plus

PMI + FHA Upfront is eccentric - If they deem you as a risky borrower, then why take the risk and lend at all? For high credit worthy borrowers who want to make little downpayment like me it is particularly harsh. Here's why:

1. FHA socializes subprime default in the form of increased mortgage insurance.
High credit worthy borrowers like me foot the bill.

2. Banks make profit off of my 'credit worthiness' => I will pay Prin+Interest on time.

Basically high credit worthy borrower is forced to participate in a sinister socialization campaign where he pays his hard earned wealth for a sloppy sub-prime defaulter.
This is the kind of thing that Robin Hood did - not what FHA should do.

So Comprende? FHA is a bad deal.


I guess its noteworthy to mention that the mortgage borrower who is victimized the most, is the one with high credit worthiness who cannot come up with big downpayment -- I unfortunately fix exactly into this description.

Sorry I am sounding arrogant today, but PMI is getting onto my raw nerves
The fact that you can't come up with a larger down payment is part of why you are deemed less credit worthy. Saving up the down payment demonstrates financial planning and good money management. There's more to it than simply a credit score. So no, you are not footing the bill for others, you are paying a premium to be able to get a mortgage when you otherwise would not qualify for one.

And if you want to be able to pay more against principal, it's not hard at all. Buy a less expensive house so your monthly payment is less and then put the extra towards principal.
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