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Old 05-26-2015, 04:00 PM
 
77 posts, read 70,750 times
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My husband and I are looking to buy a home in NE Dallas and was just hit with the news that if we want to buy now, we are only preapproved for a FHA loan. This is due to me having a short sale on my record

However, if we wait it out another year, we would be approved for a conventional loan which is what we would prefer.

With Toyota and Liberty Mutual moving into the area, housing prices have skyrocketed and I'm nervous about waiting it out another year to get something that won't be overpriced as well as the potential of interest rates increasing.

Should I go ahead and buy now or just wait it out?

TIA
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Old 05-26-2015, 05:37 PM
 
Location: Southern California
4,350 posts, read 4,929,984 times
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How much more per year does FHA cost, $6000? How much are those Californian going to drive up prices next year?
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Old 05-26-2015, 06:10 PM
 
10,265 posts, read 6,491,094 times
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Get a preapproval and find out how much the mortgage insurance will cost. There is no way to get rid of it but to refinance once you get into an FHA loan or to pay back the loan faster.
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Old 05-26-2015, 07:58 PM
 
Location: Phoenix, AZ > Raleigh, NC
14,297 posts, read 17,497,824 times
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How much down payment do you have now? if you eat rice and beans, how much can you have next year? (Give me percentages, not dollars)
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Old 05-26-2015, 08:18 PM
 
3,317 posts, read 7,253,255 times
Reputation: 4095
Quote:
Originally Posted by sgoofi View Post
My husband and I are looking to buy a home in NE Dallas and was just hit with the news that if we want to buy now, we are only preapproved for a FHA loan. This is due to me having a short sale on my record

However, if we wait it out another year, we would be approved for a conventional loan which is what we would prefer.

With Toyota and Liberty Mutual moving into the area, housing prices have skyrocketed and I'm nervous about waiting it out another year to get something that won't be overpriced as well as the potential of interest rates increasing.

Should I go ahead and buy now or just wait it out?

TIA
First, what was the specific date of the short sale? And how much total out of pocket can you do now?

FHA's recent reduction in monthly mortgage insurance, coupled with the ability to get a really low rate, might facilitate you getting into a home now, before prices in that area go up another 8%. As a Plano Wildcat and SMU Mustang, I lived in Plano and all over Dallas for about 35+ years. Where are you looking? What's important to you? Do you want to rent a house now, then roll the dice in a year, and deal with an even more depleted and over-priced inventory, when rates are sure to be higher?

Or do you get in now, with minimal out of pocket, into the house you want at a better price than it will be at next year? Conventional loans are more credit-score sensitive, so, not to get into your business, but it sounds like there was a short sale but no bankruptcy? Maybe get into an FHA loan now, keep more cash on hand, and use that cash to calibrate your credit scores up by keeping debt paid down, keeping a few open-and-empty credit cards, and protecting yourself from credit damage until you can close that Conventional refinance one day after the 4 year anniversary of the SS. If and when you refinance, you will get a $$ rebate on the Title policy. Not much, but every penny counts.

Or maybe you get in somewhere in a burgeoning area, maybe it's not the perfect house, but it's the right location, the right schools. You get in with the fha now, then next year you do a Homestyle Renovation Loan, and fix that house up so it's perfect, with all the costs rolled in, and that loan would be based upon the future, post-rehab value, hence greater equity at closing and better terms.

Maybe you look at the FHA as a lily-pad to get you into a home, and you want out of it the first day you can get out. Maybe you opt for a higher rate NOW, so that every single cost is "paid" by a Lender credit, thus really saving you cash. You write off the interest payments on your income taxes. And, this is huge: you don't have to pay to move again next year.

First things first, though, let us know the date of the short sale and your cash position. Hopefully it all works out perfectly for you!
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Old 05-26-2015, 09:10 PM
 
77 posts, read 70,750 times
Reputation: 49
Quote:
Originally Posted by thelopez2 View Post
How much more per year does FHA cost, $6000? How much are those Californian going to drive up prices next year?
I wish I knew.

Quote:
Originally Posted by so954 View Post
Get a preapproval and find out how much the mortgage insurance will cost. There is no way to get rid of it but to refinance once you get into an FHA loan or to pay back the loan faster.
With interest rates potentially rising, it's unlikely I'd be able to refi with any savings and we already planned on paying back the loan faster than what was required for a 30 year.
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Old 05-26-2015, 09:29 PM
 
77 posts, read 70,750 times
Reputation: 49
Quote:
Originally Posted by Jkgourmet View Post
How much down payment do you have now? if you eat rice and beans, how much can you have next year? (Give me percentages, not dollars)
We have about 11% right now. If we wait until next year, we'll have 15%

Right now
Quote:
Originally Posted by Pfhtex View Post
First, what was the specific date of the short sale? And how much total out of pocket can you do now?

FHA's recent reduction in monthly mortgage insurance, coupled with the ability to get a really low rate, might facilitate you getting into a home now, before prices in that area go up another 8%. As a Plano Wildcat and SMU Mustang, I lived in Plano and all over Dallas for about 35+ years. Where are you looking? What's important to you? Do you want to rent a house now, then roll the dice in a year, and deal with an even more depleted and over-priced inventory, when rates are sure to be higher?

Or do you get in now, with minimal out of pocket, into the house you want at a better price than it will be at next year? Conventional loans are more credit-score sensitive, so, not to get into your business, but it sounds like there was a short sale but no bankruptcy? Maybe get into an FHA loan now, keep more cash on hand, and use that cash to calibrate your credit scores up by keeping debt paid down, keeping a few open-and-empty credit cards, and protecting yourself from credit damage until you can close that Conventional refinance one day after the 4 year anniversary of the SS. If and when you refinance, you will get a $$ rebate on the Title policy. Not much, but every penny counts.

Or maybe you get in somewhere in a burgeoning area, maybe it's not the perfect house, but it's the right location, the right schools. You get in with the fha now, then next year you do a Homestyle Renovation Loan, and fix that house up so it's perfect, with all the costs rolled in, and that loan would be based upon the future, post-rehab value, hence greater equity at closing and better terms.

Maybe you look at the FHA as a lily-pad to get you into a home, and you want out of it the first day you can get out. Maybe you opt for a higher rate NOW, so that every single cost is "paid" by a Lender credit, thus really saving you cash. You write off the interest payments on your income taxes. And, this is huge: you don't have to pay to move again next year.

First things first, though, let us know the date of the short sale and your cash position. Hopefully it all works out perfectly for you!
We actually are looking in N. Garland, specifically Firewheel, but are open to anything without a HOA in 75044 or 75040. We currently are renting a house now but are month-to-month, so can leave when we're ready.

The date of the short sale was 5/18/12. There was no bankruptcy. I had the short sale because I was relocating half way across the country for a new job. We actually had not expected to purchase another house until at least 2017, but I didn't know the DFW market would be SO CRAZY that I would be facing this.

We have about 11% as a down payment now, but could have 15% if we wait until next year. Is it really worth it to refinance for a conventional loan potentially 6 months after closing on the FHA loan? I don't see where the cost savings would be. We have no other debt, and keep very little credit card debt (in other words, we pay our balances off each month).

I'm not familiar with the Homestyle Renovation loan so will look into that, as we're not opposed to a little work (nothing major like foundation repair though).
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Old 05-26-2015, 10:07 PM
 
3,317 posts, read 7,253,255 times
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Forgot to ask your price point. Firewheel....just for the sake of round numbers, let's look at a $250,000 price. That could be low, but you can extrapolate costs if so.

fha allows for as little as 3.5% down. That's down payment. If you buy in the next few months, your closing costs will likely include (close enough to) a full year of property taxes (maybe 14 months, even) and 14 months of homeowners insurance, plus, let's ballpark $3500 for everything else. So.....worst case scenario, that could be close to an $8-10,000 hit for closing costs, plus the 3.5% down payment. Yes, you might negotiate seller-paid closing costs.

FHA: The thing about FHA is that you have a monthly mortgage insurance payment, inside your house payment, forever. It never expires, never goes away. From a $250k price, the net loan amount of $241,250 yields a monthly Mortgage Insurance Premium (MIP) Payment of $193.

That's an extra $193 per month, forever. This destroys the benefit of our present rate culture. So that's why I suggest the lily-pad scenario. Now, if you're in a place and can extend, that avoids the move-twice bugaboo, and it lends credence to the wait-until-next-year-to-buy approach.

Next year: Conventional loan with 15% down.
Several ways to cut this: seller pays closing costs (hopefully), so your $$ all goes to down payment, so you are at 85%. You can get a 2nd mortgage to keep your primary mortgage at 80%, thereby eliminating the need for Conventional mortgage insurance. Again, here, these laons are more rate-sensitive. But, you can pay off that little second mortgage fairly quickly, and then just pay your primaty mortgage.

But what's the payment looking like next year? If I knew that, wow. But let's say the market steadily goes up, as it should, and you get 4.75% on the 80% portion of the loan next May. That's a $1,043 base payment. Add taxes and insurance, and add a 6-7.99% second mortgage payment for that lingering 5% (or 10% if you want to keep cash on hand). Payments on 2nds vary. I can forward you greater detail, but right now, it would amount to clutter.

Typically they are 15 year fixed loans, but there are 20's available, too.

Bottom line: fha 3.75% (with MIP) = ($1,117 + $193 = $1310) now vs. Conventional Worst Case scenario later (wild guess) of 4.75% ($1,043 +$85 on the second mortgage = $1128)
***Note: add monthly property taxes,homeowners insurance to each of these payment scenarios for the Full Payment.

(If you're still reading this, then I am both impressed, and sorry. I am sorry for offering so much hypothetical detail. It's tough to describe this stuff in generalities.)

I guess my conclusion is that, even if conventional rates approach 5% next year, it's still advantageous to get out of an fha loan with that monthly mortgage insurance. But at the very least, you have a place now, you will not have to move twice, and if you find a home you love, you can hopefully take actions necessary to secure it.



OH, and by the way, as of this moment, you could likely swing better than a 3.75% rate on an FHA. My goal here is to never use low-ball numbers, because you're not in contract today, and you deserve an honest opinion of the market over time.

Last edited by Pfhtex; 05-26-2015 at 10:32 PM..
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Old 05-27-2015, 06:21 AM
 
736 posts, read 562,439 times
Reputation: 696
Quote:
Originally Posted by thelopez2 View Post
How much more per year does FHA cost, $6000? How much are those Californian going to drive up prices next year?
Home prices don't always go up as people experienced from 2005 to 2009. In fact a study was done that shows speculators spiked the home prices the last few years and they will have to unload them (shadow nventory).

So prices "should be" coming down according to lots of supporting real estate and economic data based on interest rates rising, more home inventory available, and higher than normal appreciation.

Their data suggests that jobs drive home prices up more than any other factor. I think the continued outflux of Californians to nearby states may surprise these experts.
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Old 05-27-2015, 07:16 AM
 
77 posts, read 70,750 times
Reputation: 49
Quote:
Originally Posted by Pfhtex View Post
Forgot to ask your price point. Firewheel....just for the sake of round numbers, let's look at a $250,000 price. That could be low, but you can extrapolate costs if so.

fha allows for as little as 3.5% down. That's down payment. If you buy in the next few months, your closing costs will likely include (close enough to) a full year of property taxes (maybe 14 months, even) and 14 months of homeowners insurance, plus, let's ballpark $3500 for everything else. So.....worst case scenario, that could be close to an $8-10,000 hit for closing costs, plus the 3.5% down payment. Yes, you might negotiate seller-paid closing costs.

FHA: The thing about FHA is that you have a monthly mortgage insurance payment, inside your house payment, forever. It never expires, never goes away. From a $250k price, the net loan amount of $241,250 yields a monthly Mortgage Insurance Premium (MIP) Payment of $193.

That's an extra $193 per month, forever. This destroys the benefit of our present rate culture. So that's why I suggest the lily-pad scenario. Now, if you're in a place and can extend, that avoids the move-twice bugaboo, and it lends credence to the wait-until-next-year-to-buy approach.

Next year: Conventional loan with 15% down.
Several ways to cut this: seller pays closing costs (hopefully), so your $$ all goes to down payment, so you are at 85%. You can get a 2nd mortgage to keep your primary mortgage at 80%, thereby eliminating the need for Conventional mortgage insurance. Again, here, these laons are more rate-sensitive. But, you can pay off that little second mortgage fairly quickly, and then just pay your primaty mortgage.

But what's the payment looking like next year? If I knew that, wow. But let's say the market steadily goes up, as it should, and you get 4.75% on the 80% portion of the loan next May. That's a $1,043 base payment. Add taxes and insurance, and add a 6-7.99% second mortgage payment for that lingering 5% (or 10% if you want to keep cash on hand). Payments on 2nds vary. I can forward you greater detail, but right now, it would amount to clutter.

Typically they are 15 year fixed loans, but there are 20's available, too.

Bottom line: fha 3.75% (with MIP) = ($1,117 + $193 = $1310) now vs. Conventional Worst Case scenario later (wild guess) of 4.75% ($1,043 +$85 on the second mortgage = $1128)
***Note: add monthly property taxes,homeowners insurance to each of these payment scenarios for the Full Payment.

(If you're still reading this, then I am both impressed, and sorry. I am sorry for offering so much hypothetical detail. It's tough to describe this stuff in generalities.)

I guess my conclusion is that, even if conventional rates approach 5% next year, it's still advantageous to get out of an fha loan with that monthly mortgage insurance. But at the very least, you have a place now, you will not have to move twice, and if you find a home you love, you can hopefully take actions necessary to secure it.

OH, and by the way, as of this moment, you could likely swing better than a 3.75% rate on an FHA. My goal here is to never use low-ball numbers, because you're not in contract today, and you deserve an honest opinion of the market over time.
Thanks so much for your insight Pfhtex. Just for reference, our budget is $200-275k. We're also able to extend our lease in our current rental home so we don't have to worry about moving twice. My major concern in refinancing, although it will be a cost savings in the long run, would be the costs involved in doing the refi in the first place. My mind can't help but wonder if I could just save the money, and with a little prayer, hope that I can still get a good deal next year. Or is that just a pipe dream?

Quote:
Originally Posted by frankrj View Post
Home prices don't always go up as people experienced from 2005 to 2009. In fact a study was done that shows speculators spiked the home prices the last few years and they will have to unload them (shadow nventory).

So prices "should be" coming down according to lots of supporting real estate and economic data based on interest rates rising, more home inventory available, and higher than normal appreciation.

Their data suggests that jobs drive home prices up more than any other factor. I think the continued outflux of Californians to nearby states may surprise these experts.
I don't exactly understand what you mean. It's because of the Californians coming here that home pricing has gone up. Are you saying that prices will come down regardless of their move to DFW?
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