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Old 03-04-2009, 03:22 AM
 
2 posts, read 10,084 times
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Hi all,
I am in the market for my first home. The purchase price will be under $200,000. I currently have enough for a 20% down payment but that would take 98% of my savings. I have spoken to two potential loan officers, one advised putting down 20-25%, the other suggested an FHA loan, putting 3% down. The FHA loan sounds very tempting. I do however want to avoid PMI. I only plan on living in the property between 5 and 7 years. Any advice? Thanks in advance, all comments are welcome.

REN
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Old 03-04-2009, 04:06 AM
 
Location: Bella Vista, Ark
69,286 posts, read 79,469,982 times
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Quote:
Originally Posted by renovice View Post
Hi all,
I am in the market for my first home. The purchase price will be under $200,000. I currently have enough for a 20% down payment but that would take 98% of my savings. I have spoken to two potential loan officers, one advised putting down 20-25%, the other suggested an FHA loan, putting 3% down. The FHA loan sounds very tempting. I do however want to avoid PMI. I only plan on living in the property between 5 and 7 years. Any advice? Thanks in advance, all comments are welcome.

REN
you seem to have a pretty good knowledge of what you are doing, because of the PMI I would go with a conventional loan..

Nita
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Old 03-04-2009, 11:35 AM
 
Location: Cary NC
553 posts, read 2,081,945 times
Reputation: 303
Quote:
Originally Posted by renovice View Post
Hi all,
I am in the market for my first home. The purchase price will be under $200,000. I currently have enough for a 20% down payment but that would take 98% of my savings. I have spoken to two potential loan officers, one advised putting down 20-25%, the other suggested an FHA loan, putting 3% down. The FHA loan sounds very tempting. I do however want to avoid PMI. I only plan on living in the property between 5 and 7 years. Any advice? Thanks in advance, all comments are welcome.

REN
You will have to decide which scenario is more attractive to you:
1) Lower payment (probably $100 a month) using most of your savings and a slightly better rate (conventional has slightly better rates than FHA right now with most lenders)
2) Pay about $100 more per month, slightly higher rate and a non refundable up front mortgage insurance premium(UFMIP) = to 1.75% of the loan amount example 200,000 x 1.75% = $3,500 which goes to the FHA to help pay for all of the homes that end up foreclosing. The only way you might get some of that money back is if you do a streamline refinance through FHA. Either way you pay 3,500 PLUS all of the normal loan fees. FHA does not allow you to pay the tax service fee ($80- big deal) like conventional does and limits the loan origination fee to 1% which you can negotiate anyway. In this case you only put down 3.5% of your money and stash the rest.

Neither is better or worse than the other...just different.

IMO I would rather put down 3.5% and pay the 3,500 (it is included on top of your mortgage loan amount, does not come out of your pocket at closing. So if you buy 200,000 - 3.5%= 7,000 = 193,000 loan amount then add 3,500 UFMIP to this and your total loan amount is 196,500) and have plenty of cash in the bank.

Why do I like the smaller down payment option? Because if you have any kind of financial emergency and all of your savings is tied up into your mortgage you will have one hell of a time trying to get it out and will have to pay fees for an equity line of credit or to refinance.

Cash is king.
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Old 03-04-2009, 12:15 PM
 
Location: MN
761 posts, read 2,959,435 times
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deuturdu- very good explaination. Rep points on that.
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Old 03-04-2009, 12:39 PM
 
Location: Cary NC
553 posts, read 2,081,945 times
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Originally Posted by Norsky1 View Post
deuturdu- very good explaination. Rep points on that.
Thank you! Right back at you : )
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Old 03-04-2009, 03:24 PM
 
3 posts, read 43,216 times
Reputation: 15
Renovice,
I was in your situation and decided to go the FHA way. The deciding points for me were
1. Cashpreservation in the event of an emergency,lay off,health expenses, etc I still have my cash reserves
2. A larger down payment could be like throwing $100 bills to the fire if the market value of the house continues to go down (like now).
3. You get very similar interest rates with both FHA and Conventional loans
FHA was a no brainer in my situation, I did exactly what deuterdu explains

Last edited by luish73; 03-04-2009 at 03:32 PM.. Reason: bad word selection
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Old 03-04-2009, 11:50 PM
 
2 posts, read 10,084 times
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You guys are awesome, thank you so much for your opinions. I meet with the loan officer tomorrow and they are going to explain it in a little more detail. Thanks again for all of your insight. This process can be very intimidating.
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Old 04-22-2009, 02:17 PM
 
1 posts, read 4,603 times
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@Deuterdu...where did you get the figure of $3500 for UFPMI from?
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Old 04-22-2009, 03:58 PM
 
4,542 posts, read 11,547,065 times
Reputation: 3063
Quote:
Originally Posted by renovice View Post
Hi all,
I am in the market for my first home. The purchase price will be under $200,000. I currently have enough for a 20% down payment but that would take 98% of my savings. I have spoken to two potential loan officers, one advised putting down 20-25%, the other suggested an FHA loan, putting 3% down. The FHA loan sounds very tempting. I do however want to avoid PMI. I only plan on living in the property between 5 and 7 years. Any advice? Thanks in advance, all comments are welcome.

REN
If you have very steady employment and anything else to fall back on in case of emergencies (including credit card, 401k loan, family, etc.) I would side toward the 20%. The difference in payment is more like $283/mo. according to my calculations on a $200k purchase price. The MI alone is $88/mo. You can also look at splitting the difference and going 10% down on a conventional with PMI.

As for 'throwing $100 bills away with price depreciation', that will only matter if you default and get foreclosed upon.
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Old 04-22-2009, 03:59 PM
 
4,542 posts, read 11,547,065 times
Reputation: 3063
Quote:
Originally Posted by OCresi View Post
@Deuterdu...where did you get the figure of $3500 for UFPMI from?
1.75% x $200k loan amount
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