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Old 07-24-2009, 09:20 PM
19 posts, read 119,721 times
Reputation: 23


So I'm hoping to get a few opinions on this: I'm a first time homebuyer with limited downpayment to purchase a home (3.5-5%). I have a pretty decent income and great credit scores (Experian - 763, Transunion - 774, Equifax - 774). Apologies in advance for the long message:

I was pre-approved by Wells Fargo for an FHA loan at 3.5% but the more I read, the more I feel conventional at 5% would be the way to go. Here's were the weird scenario comes in:

I contacted my credit union bank (MCU) because their website states they offer 5% conventional loans (at the time 5.00% slightly lower than the FHA 5.5%). I decided to go to a homebuyer seminar with MCU, only to have the rep there state "DEPENDING on your credit AND the zip code where you're buying, we are requiring an add'l 5% (total 10%) for conventional loans because we're in a declining market). They also give us the info that they will be offering FHA loans soon but will take 90 days to close so they recommend this if you don't have 10% down. Okay... So I speak to a rep, explain my situation to her, specifically letting her know "these are my scores, I really don't want to put it through UNLESS I can put 5% down because there's no way I can 10%". I asked that she not put through the application until I send her the zip code. She promises to contact me...a week goes by as I leave her numerous voicemail messages and emails to find out where we're at.

She finally contacts me tonight only to tell me "great news - you were pre-approved! must be 10% down but I recommend you do FHA" Um - but I asked not to put this application through...

I look at the MCU website again, and still 5% conventional loan info listed. I call up their 800 # and the rep says "no - we're still offering 5% conventional loans, it's not 10%".

What gives here? Do you think this rep is trying to push the FHA because of the higher fees?

Has anyone recently (within the last 60 days) bought a home with a conventional 5% down? And has anyone dealt with MCU?

Any comments would be greatly appreciated.

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Old 07-25-2009, 09:07 AM
7,851 posts, read 19,216,550 times
Reputation: 8671
In areas flagged "declining markets," it's not Fannie or Freddie, but the mortgage insurance companies that will not insure the loans w/ just 5% down. This is for obvious reasons, they feel if the values are declining, it won't take long for there to be 0 equity in the subject home.

I think you are working with someone very inexperienced and it is not in your best interest to continue working with them.

I would recommend FHA for several reasons: less down, the mortgage insurance is more economical (in the monthly payment), the lender can still chose the appraiser (and I would double check this), and more flexible underwriting guidelines.
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Old 07-25-2009, 09:35 AM
392 posts, read 1,438,169 times
Reputation: 134
If you give me the zip code you are buying in, I will tell you if it is a declining market. If you are in a declining market, you'll need 10% down. If not, most lenders will do 5%. As the previous poster said, it is the PMI companies that are making this rule so it is the same at most lenders.

Even if you can do 5% down, keep in mind that their is other differences. For example, with FHA you pay the upfront mortgage insurance (it's usually added to you loan). I assume this is what you mean when you say "higher fees." However, the monthly mortgage insurance is cheaper on FHA. It is possible that you get a higher rate on the FHA but the overall payment is less because the mortgage insurance is less.

Another key difference is the amount the seller is permitted to pay towards you closing fees. Many first time buyer ask the seller to pay some of all of their closing fees. On conventional, the amount you can ask for is limited to 3% of the price of the home. On FHA, you can ask for up to 6% of the price of the home.

So if you are buying a $100,000 home and closing fees are $5000, on conventional, you can only ask the seller to pay for $3000. So you would need 5% down ($5000) plus the remaining $2000 that the seller can't cover. On FHA, you would need 3.5% down (3500) plus the sell could pay all of the fees (they are permitted to pay up to 6%... 6% of 100K is $6000 and, in this example, fees are only 5000).

Don't compare Rate to Rate. The lowest interest rate is not the best deal. You want to compare rate, fees, mortgage insurance, out of pocket expense, monthly payment, etc. You need ALL of the details to make an educated decision.

It sounds like this loan office is not responsive. If she is this unresponsive during the up front discussions when she is trying to earn your business, how unresponsive will she be once you committ to her and she is processing your paperwork? You are the customer and their is thousands of places you can get a mortgage. If you need suggestions, direct message me as it is not appropriate to post.

Good luck.
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Old 07-25-2009, 10:25 AM
19 posts, read 119,721 times
Reputation: 23
Thanks so much for the responses!! This was very helpful!

I think you're right - I'll stick with the original loan approval from Wells Fargo I got (FHA - 5.5%) - and skip the credit union with the unresponsive rep!

I'm looking at zip code 07083 (Union, NJ).

One of my big motivations right now is the First Time homebuyer credit for $8k. I've read many posters speculations about the market possibly declining up to 25% by this time next year. If that is the case, I'd probably be better off waiting...and maybe there's a chance the gov't will extend the credit next year... Big maybe's though
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