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We are pretty new to the home buying game and we could use all the advice out there.
We have been approved for $350 conventional with 3% down but they said we could go FHA if we want. The all around payment would be $2,500 a month and I'm not sure if that's high or not. I'm shopping around with another lender as well. I forgot to ask the % rate, I will be.
We are really not able to do a higher down payment and $350,000 really doesn't buy us a lot of house in the area of CO we are looking and on the other hand we would be paying around $1,900 for rent in that area. So... Do we rent or buy? And advice would be great.
In CO the Castle Rock area near Denver.
I can't speak to the Rent vs. Buy question, but in my opinion, a 3% down-payment Conventional (Non-FHA) mortgage is a better way to go. Now, the rate on the Conventional will be slightly higher, but the monthly Mortgage insurance will eventually expire and be removed from your monthly payment. That is not the case with FHA.
Do whatever you can to stay away from FHA. At, least for now. The need to clean up their offerings before I recommend fha to others besides those for whom FHA is the only way.
3% down would take you 8-11 years to be under that 78% LTV assuming no appreciation. A bank does not have to accept a new appraisal before the 5 year mark and even after 5 years there are pleanty of horror stories of people fighting banks to drop the PMI. Average first time homeowner is in their home for 12 years before selling and I would be willing to bet every property I own that there will be another house value decline between now and 2028 so you may not even appraise high enough before the loan naturally goes below 78% LTV.
All that said FHA is expensive, upfront MI is a sick joke, so I would go conventional. If the payments are lower by $200 or more is the only way I would suggest FHA but that isn't likely to happen. Some areas have first time homeowner programs specifically for FHA or conventional so make sure you are using a local lender as most national lenders aren't likely to have access to those programs.
So... Do we rent or buy? And advice would be great.
In CO the Castle Rock area near Denver.
I'd create a monthly budget rather than let a lender tell you how much you can spend on your housing expense. There are factors that they don't see when qualifying you.
Lots of good replies and I agree that looking at Conventional if at all possible is the best avenue. The upfront mortgage insurance premium is like throwing money away and as was mentioned the PMI stays on the loan forever with an FHA loan. If you can put 5% down versus the 3% down you should get a lower rate and you will also get a lower PMI factor. After the 5% for every extra 5% you put down you will see a lower PMI factor.
As thelopez2 mentioned your lender should work with you on the payment amount more so than the purchase price. If your area is like in Illinois then property taxes can influence the monthly payment quite a bit.
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