Home Buying in Fremont>Question Details

qfos, Home Buyer in Fremont, CA

20% down or 203K Loan - which one to choose?

Asked by qfos, Fremont, CA Sun Feb 17, 2013

We are in the process of buying a house (our offer has been accepted, but sale hasn't closed). The house needs some work. Our options at this point are:

1) put 20% down and get a 203K loan
2) put 15% down and spend 5% on fixing the house, incur monthly mortgage insurance

Whats the best thing to do?

Thanks in advance for your help!

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The title of your post says "20% down or 203k loan"... but then one of the options you laid out is putting 20% down AND getting a 203k loan. I am a bit confused. But going along with the question you wrote in the body of your post...

However if the home is in decent condition now (meaning an "as is" appraisal will pass lending requirements), and you have a good credit score, then I'd strongly suggest putting 15% down for a few reasons.

First, with an FHA 203k loan, even with 20% down, you will have mortgage insurance. With FHA there is always an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, and at 20% down the annual mortgage insurance is 1.2% (if the loan term is longer than 15 years & loan amount no more than $625,500, 1.45% for loan terms longer than 15 years & loan amounts above $625,500, .35% for loan terms of 15 years or less & loan amount no more than $625,500, or .60% for loan terms of 15 years or less & loan amount above $625,500, with a 15-year term or less & at least 22% down then there is no annual mortgage insurance). Those premiums will increase on April 1st (the FHA case # has to be ordered before then to stay at current levels).

Second, an FHA 203k rehab loan requires an additional approval process for the remodel portion of the loan - the contractor, their bid, their insurance, etc. needs to be reviewed. Then depending on the type of improvements you are doing to the property, there could be various required inspections before the rehab funds are disbursed to the contractor OR you must complete those improvements within 6 months of the loan closing. There are also some minor additional costs for an FHA 203k rehab loan, such as the supplemental origination fee, a title update, and an appraisal re-inspection fee. Additionally, FHA 203k loans can take a little longer to complete because there are variables involved (such as, are the improvements you are planning on doing to the property going to increase the value of the property by the same amount?).

Third, with a conventional loan and 15% down you are correct, there is mortgage insurance, but you have some options on how to deal with that mortgage insurance. You could pay the traditional annual mortgage insurance, which if your credit score is 720 would be .32% per year, or you could pay a 1 time single premium of 1.18% (remember FHA has the 1.75% upfront premium + an annual premium depending on the guidelines I mentioned above), or you could even take a slightly higher interest rate in lieu of paying either the annual mortgage insurance or the 1 time single premium. With the conventional loan and fixing it up after you purchase, you'd wouldn't have any stipulations on what type of improvements you could do to the property or what time frame they'd need to be completed in.

Plus, you said your offer has been accepted. I am not sure if you used the standard California Association of Realtor's contract, but within it, on Paragraph 3C(1) it specifies if you are going to be using conventional or FHA financing. If you selected conventional financing and switch to an FHA 203k loan, the seller may take issue with that.

Shane Milne | Lending in all 50 states | NMLS #81195
shane@thebesthomeloans | 949-273-4161 direct
1 vote Thank Flag Link Sun Feb 17, 2013
thanks for your (and everyone else's) response. We were thinking of doing 203K rehab loan, which given its complicated, lengthy process and limitations (requiring certified contractors), is probably not ideal for us.
Flag Mon Feb 18, 2013
It all depends on all of the specifics and the down payment, closing costs and mortgage payment numbers and types of repairs that are needed. It only takes a few dozen questions to go over which options will benefit you the best financially. It is going to depend on fico scores, debt to income ratios and the repairs needed on the home and how much you want to invest into the down payment and closing costs?

Your down payments are going to range from .5% half percent down and 3.5% down with a minimum 580 fico score for FHA. Conventional is from minimum 620 fico score for 5% down with NO Mortgage insurance (Lender paid MI). If you have a minimum 700 fico you may consider 3% down conventional. You would need a minimum 620-640 fico score to qualify for 203k loans. Here are some links to study and consider.

http://www.under640ficoscoreloans.com/Pages/203K.aspx

http://www.under640ficoscoreloans.com/Pages/203KGuidelines.aspx

http://www.under640ficoscoreloans.com/Pages/Conventional.aspx

http://www.under640ficoscoreloans.com/Pages/FHA.aspx

http://www.under640ficoscoreloans.com/Pages/JumboLoan.aspx

http://www.under640ficoscoreloans.com/Pages/ContactSheryl.aspx
Sheryl Arndt, Real Estate Broker - Sr. Loan Officer CA only
REO & Short Sale Specialist
Credit Repair At No Cost
ALL Loan Programs Available
20+ Years Experience
DRE# 01140252
NMLS# 297251
760-486-4225
9am till 9pm 7 days
http://youtu.be/MrygA2_8fAY
1 vote Thank Flag Link Mon Feb 18, 2013
Getting a 203k loan is not always hassle-free. At times, the process can be lengthy. Talking to experts makes getting approve with 203k loan easier. I found a site which will give you a detailed guide and other valuable information about 203k loan. Check out http://www.cfs203k.com.
0 votes Thank Flag Link Sat Sep 7, 2013
Get the best of both worlds with a FannieMae Homestyle loan. Renovation or fix up money and no MIP with 20% down.
0 votes Thank Flag Link Sun Jun 2, 2013
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try http://www.cfs-mortgage.com/203k for more information.
0 votes Thank Flag Link Sat May 25, 2013
about 10% down with no MI for a combined loan amount < 750K ?

Give me a call for more details
0 votes Thank Flag Link Sat May 25, 2013
Hello Qfos

conventional is inexpensive and quicker way to close the transaction , but the you might face appraisal challenge to pass lending standard.

mortgage insurance is not an issue . you can do borrower paid , upfront mortgage insurance so no monthly insurance or lender paid insurance. there are so many way you could pay .

if you have any more question feel free to contact me
0 votes Thank Flag Link Sat May 25, 2013
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try http://www.cfs-mortgage.com/203k for more information.
0 votes Thank Flag Link Fri May 24, 2013
With the right 203k team (borrower with their paperwork in order, lender, Certified 203k Contractor and experiended 203k Consultant), FHA 203k loans can be closed in 30 days, just like all other loans.
Web Reference: http://203kContractors.com
0 votes Thank Flag Link Thu Feb 28, 2013
Reference Mortgagee Letter 11-35.

With 22% down payment and a 15 yr loan, there is no mortgage insurance on an FHA loan, which includes the FHA 203k Loan. However, this option is not eligible on FHA case numbers established after March 31, 2013.

If the work on the property is regarding the safety or habitability of the property, the property may deemed insufficient collateral for the loan causing the lender to deny the loan based on property conditions. Thus requiring seller to perform renovations or buyer (you) doing a renovation loan like the 203k, which can also be used solely for cosmetic or buyer preferences.
Web Reference: http://203kContractors.com
0 votes Thank Flag Link Thu Feb 28, 2013
Assuming $417k loan amount.

Why not put 10% down and get a 10% second?
The 203k is FHA with heavy MI fees up front and monthly.
You can get a self insured loan with 5% down
MI is presently tax deductible.
Your options are many.
I am in Fremont.
Cgravelle@ diversifiedmg.com. If you would like to discuss in more detail.
0 votes Thank Flag Link Sun Feb 17, 2013
it depends on your scenario .
203k loan its a fha rehab loan. there are some requirement
property foundation ?
mortgage insurance only way to avoid that 10% equity and 15 years fix loan.
max loan 729750. so i am not sure why are you want to put 20% down.
upfront mortgage insurance.
are you doing streamline or full 203k?

so there are so many variance in 203k.

as far as avoiding the mortgage insurance on conventional loan again there are alot variance too. if the needs work then conventional loan is possible.


please call me so i can go over some scenario .
0 votes Thank Flag Link Sun Feb 17, 2013
With 15% down, you do not need Mortgage Insurance, and can break it into a 80/5/15
We do first and second combo.

Here are our rates and maximum combined loan to value for our 2nd (Home Equity Line of Credit)

Combined loan -to value 80.01 - 89.99% Prime + 1.99 = 5.24%
Combined loan 80.00 and below Prime + 1.49 = 4.74%

Max combined liens: 89.99% to $750,000
85.00% to $1 Million
Combined liens to $1M is our absolute max

Cheers
0 votes Thank Flag Link Sun Feb 17, 2013
We are one of the rare lenders that offer 203 K for up to the "High Balance" limit!

Feel free to contact me if I can assist
0 votes Thank Flag Link Sun Feb 17, 2013
Like John indicated I can't give you advise but here is my 2 cents.If you are using 203K loan,you could include repair cost in your loan with 20% down so you don't need to pay mortgage insurance.Good Luck!!!!
0 votes Thank Flag Link Sun Feb 17, 2013
Your question isn't one a real estate agent can answer. Best to speak with your tax pro or financial planner.
0 votes Thank Flag Link Sun Feb 17, 2013
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