I hope this helps. Let me know if I can be of further assistance to you and good luck with your first home purchase!
Your best option is the FHA loan. Here why: On average, 1st time home buyers typically stay in their home 5 years or less. Also, this market is still declining and most predict it won't turn around around for another 2-3 years. If so, and depending on your specific market, you could loose anywhere between 10-40% of your initial down payment and home value. Significant losses either way if you're in the home for 7-10 years, let alone 5. That said, its wiser for you to put the least amount down and pay no points. Furthermore, even though you're paying 310 more a month (18,600 total in 5 years) over the Conv 95% loan, when you add the 18,600 with your 16,100 down payment (34,700) you're still saving 8,200.00 (34,700 - 42,900) in over all costs. A significant savings that will only increase if you wind up selling your home in less than 5 years.
Next, unlike Conventional loans, FHA loans are also assumable. Given how low rates are now and the likelihoond they'll be a lot higher 5 years from now, this will be a strong selling incentive for prospective buyers. Even if you were putting 20% down Conventional, your FHA interest rate should still also be .25 to .50 lower than the Conventional rate. As a rule, even though you're putting less down, FHA rates are typically always equal to or lower than Conventional rates.
Lastly, MIP, like the interest on your loan, is a tax write off. I hope this is clear and helpful.
What are the Total Monthly Pymts for each scenario and I can help you figure out which will be best. IF the payments are not too far off, and depending on your asset situation, I would recommend going with the lowest out of pocket scenario.
It is always a good idea when buying a new home to have liquid assets left over, you don't want to buy a home and put most of your savings as a down payment. You should have at least 6 months mortgage payments left over in savings, and depending on the age and condition of the house leave yourself a repair fund as well... Let me know the payments and I can further give my opinion.
FYI being a first time homebuyer in washington you may be eligible for the DC first time home buyers tax credit. It is a $5,000 credit for those who qualify.
I like the FHA product and with rates in the 3's it's hard to pass up!
Great breakdowns, btw, Lew and Rudy : )
Have you found a house yet? If not, please check out 512 Rittenhouse NW which was just listed for $329K. It is renovated, so you can still decide to go FHA if you so choose.
Lots of very good answers here, so I'll only drop a couple of things that have not been mentioned yet.
First, and I want to point this out IMMEDIATELY. FHA is raising their upfront premium to 2.25%. The only thing you need to do to protect yourself from this increase is have your lender order a FHA case # by this Friday. It is only specific to a property, so this will only work if you know which property you're looking to buy. If you know which house you're buying and your case # has not been ordered, please make sure this is done NOW.
Next, Evelyn made a great recommendation about considering an adjustable rate loan. It's very important that you understand not only what your current rate is and how long it's fixed, it's also important to evaluate what your rate can adjust to and what determines the new rate. This is SO important.
What major difference between conventional and FHA loans are the adjustable rate mortgages. FHA ARM's usually have a 1% periodic and initial cap adjustment which means that JUST IN CASE you keep your 5/1 loan beyond 5 years, the rate can only move 1% a year. This makes a FHA ARM at 4% safe for 6-7 years. To read more about ARM's, read this blog post I posted. The case study I used was a FHA ARM:
Next, you mentioned you were considering investing money into the property. One thing I noticed is that nobody has mentioned a FHA 203k loan. This is a loan where you can rehabilitate the property either as a purchase or refinance, thus rolling the costs into the loan. I would also look into this. Here is another post about 203k loans written by another author:
Lastly, after recommending a 5/1 ARM, there is a question out there regarding assumability. Of course, a low fixed rate is more desireable to assume than an ARM, so take that risk into consideration.
There are many factors to consider when comparing loans and I could write all day long, but I wanted to touch on just a few major things that have not been mentioned.
The more detailed answer: you are buying the home for a given price, ie: $350,000 and using financing as a tool to cover the difference of the sales price vs. downpayment (you donâ€™t loose the money you put down, its simply tied up in an asset). No matter what the market does, that home is yours for the price you bought it for.
In order to get financing, MI, paying interest on the less amount down, or interest rates, are the only things I would count as a â€œnet lossâ€ when comparing loans in your scenario, calculated out over the x number of years you plan to keep the property.
To throw a curve-ball in the mix my bank is offering 80/10/10 loans, aka, put 10% down you wonâ€™t have MI, so if you go the 10% down route, an 80/10/10 is the best option.
Since you are under contract you will still qualify for the first time homebuyer tax credit, assuming settlement is before June 30. DC also has their own first-time homebuyer tax credit for up to $5,000 but you canâ€™t claim both.
Just an FYI that the FHA UFMIP for FHA increases to 2.25% after April 5, so make sure your lender has ordered a FHA case number by then. Give me a call if you want me to run numbers.
For a conventional loan with 10% down, at 5% interest, your monthly P&I payment will be $1691, and your monthly PMI premium will be $182, for a total of $1873/mo.
For a conventional loan with 5% down, at 5% interest, your monthly P&I payment will be $1816, and your monthly PMI premium will be $227, for a total of $2043/mo.
For an FHA loan with 3.5% down, at 5% interest, your monthly P&I payment will be $1845, and your monthly PMI premium will be $155, for a total of $2000/mo.
With an FHA loan, you'll pay less per month with 3.5% down than you will with a conventional loan at 5% down. You will pay $127 more per month with an FHA loan than you will with a conventional loan at 10% down, but you will save $22,750 in capital. It will take you 180 months (or 15 years) to draw off that $22,750 to make up the difference in monthly payments. You can retain that capital for future emergencies, for investments, to make improvements in your new home, or for whatever you need it for.
Linda Funabashi/Realty Pros
Does it make more sense to rent or to buy? Read it, look at the amortization table. See the real costs involved. It could be shocking to you.
Below is a blog saying why renting at a higher price than buying could be your best option. Definitely not what most people consider.
It is how to look at a short term buying verses renting scenario just by numbers. I hope it helps.
--FHA: $2305/mo, $16,100 at closing
--95% conv: $2,090/mo, $29,700 at closing
--90% conv: $1,995/mo, $42,900 at closing
To give you an idea of my finances, the total value of all cash in my accounts is $43k giving me a cool $100 left over the first month, but at least the month after I'd save an extra $300 over FHA, $100 over 5% down. Keeping in mind I'll only be here ~5 years, what do you think of these options?
0% down dead last.
3.5% down almost last
conventional mortgage second place
cash, top billing and most wanted.
It is always nice to have extra money available to cover problems that eat money when they occur. Furnace and transmission repair or replacement comes to mind.
You also need to cover closing costs.
If you have any job security concerns, it is probably better to rent for awhile. If not, just have a cash cushion to cover some problems just in case.