Home Buying in 19027>Question Details

Bauhaus, Home Buyer in Philadelphia, PA

What advantages can I gain with cost of PMI by going with a 5 percent down payment for non-FHA loan versus 3.5 percent for FHA?

Asked by Bauhaus, Philadelphia, PA Thu Mar 1, 2012

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Alan Openshaw’s answer
Hello Bauhaus,

when talking about a sellers assist, I don't think that will enable you to get a lower purchase price because your mortgage program allows for a bigger seller assist. Sellers typically look at the net proceeds not the purchase price. However, rather than pay out an extra 1.5% in downpayment funds, an extra 1.15% in upfront PMi and not get more than the seller assist, you can look for a lender credit towards closing costs bu paying a higher rate. For example, if you selected a rate of 3.875% and there was neither a cost nor a credit for that rate, moving to a higher rate of 4.1% would allow you to get a credit of 1.4% which would now offset some of the upfront PMI. In that case now lets compare FHA to conventional.
FHA would have upfront cost of 1% and monthly PMI of 1.15% per annum.
Conventional would now be 0.6% higher in rate, with no PMI and only with 0.75% upfront PMI ( because the credit has paid for the rest). As FHA upfront cost is going to 1.75% and the annual PMI going to 1.25% ,conventional loans with 5% down are looking better. Typically I have been guiding client towards the higher interest rate loans and lower cost as I felel that first time homebuyers need as much cash in their pocket as possible. Also I feel that most buyers will not stay in the mortgage long enough to reap the benefit of higher upfront cost and lower rates.(change of job, addition of children to the family, refinance or for home improvement, increase in salries of borrowers allowing for bigger mortgage and bigger house). That being said, everyone has different plans so it is important for me to listen to my clients to understand what is most important to them.

Regards,
Alan Openshaw
Cornerstone Lending Inc
Southampton Pa 18966
215 953 0800
cell 267 992 7276
VOTED BEST IN BUCKS 2010
NMLS ID 143960
2 votes Thank Flag Link Sat Mar 3, 2012
BEST ANSWER
Hello Bauhaus,

FHA carries a 1% upfront fee and an annual PMI rate of 1.15%.
Right now FHA rates are slightly better than conventional by maybe 0.375%
With a conventional 5% down loan you can pay 2.15% upfront and have no monthly PMI so your overall payment is less

The conventional loan will allow you to qualify for more house as your overall rate is less.
However the conventional loan requires 5% down and you can only get a 3% seller assist. With an FHA you can get up to 6% seller assist so your funds required at closing can be considerably less with an FHA.

My preference is to go with the conventional loan as long as you don't leave yourself broke. Remember you will have additional expenses after buying the house so you need to have a rainy day fund.

A good loan officer will show you both sets of numbers and explain them in detail so that you can make an informed decision.

Regards,
Alan Openshaw
Cornerstone Lending Inc
Southampton Pa 18966
215 953 0800
cell 267 992 7276
VOTED BEST IN BUCKS 2010
NMLS ID 143960
1 vote Thank Flag Link Thu Mar 1, 2012
@Alan, Thank you! Wow, what a change of decimal point will do. Actually, I meant .375%...FHA is increasing the monthly amount for loans over 625K (or there abouts). It, of course, will only affect high balance areas...the monthly increase of .125% will not have significant effect. But, the upfront increase, combined with the monthly increase, is another story!
1 vote Thank Flag Link Thu Mar 1, 2012
Deborah meant to 1.25% not to 3.75%
1 vote Thank Flag Link Thu Mar 1, 2012
Bauhaus,

We just received notification that FHA is raising the UFMIP (upfront mortgage insurance) to 1.75% effective for all applications taken after April 1st. The monthly mortgage insurance is also increasing by .125 to 3.75%, depending upon loan amount.

The increases in the FHA related mortgage insurance was brought about by the extension of the payroll tax extension and is also an effort by the government to increase utilization of private (non FHA) mortgage financing. Dollar for dollar, I think these increases are going to make it important for consumers to weigh their non FHA options (bearing in mind that private mortgage insurance companies are far more restrictive than FHA mi).

I recommend you consult with a mortgage professional and have them work up a comparative for you. Best of luck to you!
Web Reference: http://www.n
1 vote Thank Flag Link Thu Mar 1, 2012
Depends on your credit score, most likely it is best to stay with FHA.
1 vote Thank Flag Link Thu Mar 1, 2012
Mortgage insurance is cheaper with conventional loans plus you can drop it once you have paid down the loan to value to under 80%. I have a lender that offers conventional loans with a 620 score and just 3% down..

https://thelendersnetwork.com/conventional-mortgage/
0 votes Thank Flag Link Tue Sep 24, 2013
Bauhaus,

Its depends on your credit score and how much money you have to but down. I know how to originate loans and I have my real estate license. I can help you with both. There are plus and minuses for both. Also the location of the home you can do Rural housing loan (Pending Location), PHFA is another type loan you can do ( This type of loan is more driven by Income limits but you may qualify). Please contact me thru my website below.
0 votes Thank Flag Link Fri Mar 2, 2012
Assuming a credit score of 720 or above, how might this impact potential PMI savings?

Paying an increased rate up front on the 5% conventional to yield a lower monthly payment (no additional wasted dollars on PMI) is attractive and seems to make sense.

But bumping up initial outlay from original plan - 3.5% up to 5% down payment, and doubling upfront PMI for conventional loan - begins to seem more daunting. More so when I consider that it appears market conditions are favorable for buyers to negotiate significant seller assistance towards closing costs (though I'm not sure what the typical level is buyers are currently successfully asking for in lower Montgomery county right now), and if securing more than 3% assistance is possible then that too would be a significant upfront cost in having to account for that lost contribution.
0 votes Thank Flag Link Thu Mar 1, 2012
Another option you could look into is HomePath financing. The interest rate is higher, but there is no MI, no appraisal, and low down payment. The caveat is that you would be limited to choosing from Fannie Mae owned foreclosures which are HomePath financing approved. Might be worth as least checking into however....
0 votes Thank Flag Link Thu Mar 1, 2012
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