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Old 04-07-2009, 11:19 AM
 
Location: Humboldt Park, Chicago
2,358 posts, read 4,972,173 times
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I am looking to buy a condo or 2-4 flat, both owner-occupied in the city of Chicago.

Which is better, conventional or FHA?

I would look to put 5-10% down, understanding that I would have to pay PMI at least until I refinance or have it reappraised in 2 years (conventional only) to have PMI taken off. It is my understanding that PMI does not come off for FHA loans, even if the property doubles in value.

I have 807 FICO and good debt/income ratios.

What would be the best option if I buy a place for $300K? I am being told to get best rates I need to put 5% down for FHA and 10% for conventional.

What do others think? I would be looking to get the best terms (rate and points and closing costs, including PMI).
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Old 04-07-2009, 11:22 AM
 
Location: Humboldt Park, Chicago
2,358 posts, read 4,972,173 times
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Default Any Mortgage Brokers out there?

Anyone with expertise in FHA and conventional loans? Any help you can provide in the differences between the programs for a borrower with excellent (807 FICO) credit is appreciated. Thanks.
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Old 04-07-2009, 12:18 PM
 
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I'd try asking this in the mortgage forum instead. It's probably the audience you're looking for.
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Old 04-11-2009, 07:38 PM
 
Location: Huntington, NY
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[quote=Humboldt1;8226144]I
Which is better, conventional or FHA?

I would look to put 5-10% down, understanding that I would have to pay PMI at least until I refinance or have it reappraised in 2 years (conventional only) to have PMI taken off. It is my understanding that PMI does not come off for FHA loans, even if the property doubles in value.

I've heard from lenders, that in this market, you should count on at least 5 years for PMI to come off. Basically, you have to have a minimum of 20% equity in the property before that happens.
FHA loans have a different set-up than PMI, but you're right, the surcharge does not come off. One benefit of an FHA loan, however, is that it is transferable to any qualifying buyer. So if you get a rate of 5% and five years from now you want to sell, your buyer (if qualified) can take over your existing mortgage at that 5%, even if then current rate is 7% for example - that would give you a tremendous edge. Your mortgage would be transferred to the buyer and they would come up with the difference.



What would be the best option if I buy a place for $300K? I am being told to get best rates I need to put 5% down for FHA and 10% for conventional.

You'd have to talk to a Mortgage Banker/Lender - each case is different and you should understand both options fully as they affect your individual situation. BTW, FHA only requires 3.5% down - putting down 5% won't make a difference in rate, but your score and debt/income ratio will make a difference!
It is my understanding for conventional, to get the "best" rate would be a 20% downpayment - of course that would eliminate the whole PMI situation

quote]


Good luck!
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Old 04-12-2009, 11:01 AM
 
Location: Austin
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You can drop the mortgage insurance on an FHA loan just like a conventional loan. Insurance on a mortgage is still insurance to ensure payment and value, and as long as there is 20% equity, you can drop it off an FHA loan. You won't get back the upfront part that was added to your mortgage amount, unless you sell in under 5 years.
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Old 04-13-2009, 02:51 PM
 
Location: Humboldt Park, Chicago
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Default FHA and PMI

Falconhead,

My understanding from talking with mortgage brokers is that PMI does not come off on FHA until you are at 78% or less of PURCHASE price, not value.

You would need to refinance FHA loan in order to get PMI removed vs. a conventional loan where you would just get a new appraisal ordered once the loan is considered "seasoned", meaning 1-2 years and would not need to refinance loan.

I am tempted to just go FHA, pay the upfront PMI and then refinance in a couple of years to traditional loan, maybe even take some cash equity out. This is possible as I am looking to buy only foreclosed properties that will appraise out for more than selling price, even in this declining market.

I only wish FHA would give me credit for my high credit scores, as my 807 FICO certainly benefits me when going conventional.
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Old 04-13-2009, 08:00 PM
 
Location: Austin
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Quote:
Originally Posted by Humboldt1 View Post
Falconhead,

My understanding from talking with mortgage brokers is that PMI does not come off on FHA until you are at 78% or less of PURCHASE price, not value.
Your understanding is not correct. At 78% of purchase price, the MIP (not called PMI) will drop off automatically. If you want it to come off earlier, you must provide them a new appraisal showing value, but I don't believe you can do it in just 1-2 years as then they would have to refund part of the insurance fee. At least check, lenders had no problem doing this at 3-4 years into the loan. I've had several clients drop their MIP once they showed 20% equity.
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Old 04-14-2009, 12:29 PM
 
Location: WNY
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are you looking for seller concesions? fha allows 6% - conventional only 3% - that might help you decide
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Old 04-14-2009, 03:56 PM
 
Location: Humboldt Park, Chicago
2,358 posts, read 4,972,173 times
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Default Not looking for seller concessions

I am looking to buy foreclosure for distressed price and then get new appraisal showing LTV of 70% or less, which seems very doable in this market and am looking to get PMI removed ASAP.

It is my understanding that it is much easier to get PMI removed if you go conventional vs. FHA.

I will pay whatever closing I have to pay in order to get the best deal. I am looking to possibly do cash out refinance in a few years after I buy in order to maximize the equity I will have from buying a foreclosed property at a distressed price.

I just want MIP removed as soon as possible, which would technically be the moment I buy the place, but I believe the loan has to be "seasoned" before I can do this, which I am told take 1-2 years minimum.
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Old 04-20-2009, 02:51 PM
 
Location: Texas
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Just a few quick vocabulary tips:

MIP= Mortgage Insurance Premium. A premium paid at the beginning of a loan that does not have at least 20% down, that allows PMI to be removed. MIP=3.5% of the loan value, it can also be a monthly cost.

PMI= Private Mortgage Insurance. The insurance that your lender is requiring you to carry because you don't have 20% to put down on the property.

Here is a link that is EXTREMELY helpful

Homes and Communities - U.S. Department of Housing and Urban Development (HUD)
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