It does get confusing, but I recommend:
1) negotiate your sales price with assertiveness to get the most house for the lowest price
2)create instant equity with the Conv loan downpayment
3) expect the economy to improve in the next few years
4) watch your home's value increase
Your first benefit of the Conv financing is that your payment will be figured on the lower mortgage balance.
If you do choose the conventional mortgage and put $6000 down on your house, you will only owe $194,000 when you move in. However, if you go VA and pay the funding fee of $6700, you still owe the full price of $200,000! And your payment will be calculated on the higher mortgage balance.
Assuming the rates for VA and Conv are so close as to be essentially the same,(the quote I got today was only % difference) and you pay about $150 for PMI on the Conv loan, it will take 45 months before you pay out monthly PMI equivalent to the up-front funding fee of $6700. Even then, you are still ahead by the $6000 that you paid down on the Conv mortgage!
If you buy your house "right", and you expect the economy to recover (I believe it will), then you can expect a 4-5% appreciation rate. In the first 4 years that you own your house, the value will increase by $36 -$40,000, you can get it appraised then, and request the mortgage company drop the PMI, lowering your payment. If you pay the $150 towards principal each month, you can get your house paid for in a much shorter timeframe than 30 years!
I have a sharp Alabama mortgage banker who can help you....email me if you want his contact information. All the best, Dan Therrell, Fairhope, AL
You might also qualify for financing under the Alabama Housing Authority Act, which has provisions for up to 103% financing. Yes, you heard that right! Nothing down. Check out the program details here:
http://www.ahfa.com/ . Choose a local lender who participates in the program.
All the best,
These are Possible Scenarios
VA: Funding fee 3.35% = 6,700, MI = 0, Approx. Rate = ? Payment = ?
FHA: Down Payment = $6,000, MI = 81/mo, Approx. Rate = 6.75%, Approx. Payment = 1358
Conv.: Down Payment = $6,000, MI = 155/mo, Approx. Rate = 6.375%, Approx Payment = 1366
To do the math, find out what the rate and payment is for the VA loan and subtract the FHA and Conv. from the payment (separately). Divide that number into $6,700 (your funding fee) and then divide that number by 12 to see how many years it will take to recoop the funding fee. $6,700 is a big number that could be counted toward your closing/down payment.