Financing in Crystal Lake>Question Details

Amy, Home Buyer in Chicago, IL

Homepath financing VS. FHA

Asked by Amy, Chicago, IL Thu Dec 1, 2011

If a mortgage broker could help - it would be much appreciated. I recently was pre-approved for an FHA loan (because I have an 88k loan on a condo I currently have rented out) at 4-4.25 (floating rate) with a PMI payment of around 165 a month through a large Chicago area bank. My realtor now found me a home that offers "homepath" financing - and it advertising no PMI.

My question is - without paying down the homepath loan with points - how advantangeous would it be to use the homepath financing at an assumed higher interest rate - but not having to pay PMI? Wouldn't it be a wash.........especially if I plan on staying in the home for 10-12 years? My credit score is around a 750 and I have 12 stable years of work history. How much higher are the homepath interest rates? Can someone give me the pros and cons of this loan product? Thanks for any advice!

Help the community by answering this question:

Answers

8
You really need to completely compare both options to see which is the best rate. On the positive side for Homepath, there is no mortgage insurance, 3% down is allowed and with no appraisal and easier condo approval guidelines it may be quicker and easier to be approved. On the other side though, make sure your lender runs your pre-approval through the DU automated approval software. Even for good borrowers who fit all the guidelines, layering of risk often makes it hard or impossible to be approved for a condo with out putting up a much higher down payment. Also, their are loa level price adjustments for buying out of the mortgage insurance, buying a condo and for your credit score loan to value combination, and the rate on the Homepath will be much higher than FHA. When you allow for the difference in mortgage insurance the payments won't be much different, but then it depends on how long you plan to stay in the home. At some point you may be able to get rid of the mortgage insurance, but the rate stays the same either way.

On the FHA side, being that this is a condo, you need to make sure that the condo complex is FHA approved. If there are any property conditions that need to be fixed, these will most likely have to be done before you can close. With Homepath this isn't usually an issue.

The key is to make sure you talk with a good loan officer who is familiar with both programs so you know what your true options are. Good luck.
Web Reference: http://ptmortgage.com/blog
0 votes Thank Flag Link Fri Dec 9, 2011
To get no PMI with a Home Path loan you need a minimum of 5% down. If you put 3% down you will have PMI.
FHA rates are about a 1/2 % less but you do have MIP, that comes to about 1.15%. Which makes the payment a wee bit higher. That said the ratio's are harder on Home path loans. You can not have as much debt as an FHA would allow.
Now the part that some miss is if you decide to sell in few years the FHA loan is assumeable to the new purchaser (they have to quailify) at your current rate. So if rates go up (and they will) to say 6.5% your home becomes more appealing in the market place.
Depending on what your income to debt ratios are may lean you into one or the other.
You can still ask for the 3% in buyer closing cost on a Homepath home to be paid by seller even if you are going FHA with 3.5 % down. You ned to run the numbers on each laon and always think about selling options.
0 votes Thank Flag Link Thu Dec 1, 2011
Amy,

Also consider the Condo Cert and Appraisal costs that come with an FHA loan which you don’t have with Homepath Mortgage. I don’t want rehash what has already been said. I have seen the Condo Cert cost as much as $450 on the HUD. It’s a cost that a lot of times was unexpected and not account for. Please ask your agent who is covering these cost should you decided on an FHA loan. FHA requires a Condo Cert and for the HOA to be HUD approved. Check HUD's website to make sure the HOA is also approved.

Link to look up the HOA
https://entp.hud.gov/idapp/html/condlook.cfm

Good Luck
Web Reference: http://www.ccflender.com
0 votes Thank Flag Link Thu Dec 1, 2011
Keep in mind that the the PMI of $165/mo is money out the window.
It isn't deductable where (currently) mortgage interest is and with FHA you are locked in with PMI for a minimum of 5 years (thats $9,900) regardless if your home value/loan exceeds 80%.
Assuming you make the same payment amount, the homepath loan will pay down quicker as the difference in interest rates will not amount to $165/mo and would be applied to the principle balance.
0 votes Thank Flag Link Thu Dec 1, 2011
The 5 yr of PMI minimum only applies to appreciation. If you can pay down the loan below the 78% LTV then they'll remove the PMI. This was explained to me by an FHA approved lender just recently.
Flag Tue May 14, 2013
Hi,
The Hompath loans are very restrictive in the yield spread given to the brokers and banks in the form of credit to the borrower and/or meeting an originators comp plan.
Bottom line is that it will usually have a cost above and beyond the normal closing costs at a rate up near 5% on a 30 year fixed rate.
Going FHA alows you to have the same basic payment ( includes the PMI) but at a rate in the low 4's, a buyer can be credited about 3% of thre loan amount, which is a HUGE advantage to stay cash liquid when buying a home.
I do these all day and it nusually works where buyer's come to close with no money needed!
Let me know if I can help.
Dave 847-659-1900 Home Savings of America
0 votes Thank Flag Link Thu Dec 1, 2011
This financing is offered on specific properties to give added incentives to a buyer. There are usually other incentivies like a 2 year home warranty. Rather than paying down the homepath you might use the extra money to pay down or refinance the condo.
0 votes Thank Flag Link Thu Dec 1, 2011
You have to run the numbers, but for my money, take the homepath loan. As said, no appraisal costs - that saves you money and no PMI, which is huge. That saves about $100 per month. Plus quicker close. I think that most lenders will do homepath financing, so it is probably a similar interest rate. Ask your lender if they can do homepath financing.
0 votes Thank Flag Link Thu Dec 1, 2011
It is pretty much a wash. The homepath program is a great option for a buyer with less down. They only have to put 3% down and you can close quicker. You can close quicker because you dont have to have an appraisal. You do pay a slightly higher interest rate which is a wash with the no MI. I hope that helps a little!
0 votes Thank Flag Link Thu Dec 1, 2011
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2016 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer