FHA loan a good choice?

Asked by Jennifer, Augusta, ME Wed Jun 15, 2011

I am currently in the process of purchasing a home in Augusta, ME. I was in the process of obtaining a rural housing loan for the house. In the middle of this process, the lender let us know that the property is actually considered a 2 family home and that a rural housing loan does not cover this. They said the next best thing for us to do would be an FHA loan with 3.5% down that would still give us the 4.5% rate we had with the rural housing. The downsides were putting money down, although not a huge amount, and the added Mortgage Insurance Premium (MIP) of $58. We were told that this is still a good loan option for us as we did not have much money to put down and were still looking for low monthly payments. The next thing we have to do is find good home insurance. I want the cheapest insurance possible to now make up for the added $58 a month. Should we proceed with the FHA loan or look for something else? Thanks!

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Thu Apr 26, 2012
Martha, you should be careful about quoting/advertising rates, what you just did is considered a Reg Z violation and your lender would be very displeased if they saw this post, you might want to delete your post.

Quoting rates but not disclosing the APR could open you and your lender up to large losses/legal issues.
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Thanks....I am new at this. Martha
Flag Thu Apr 26, 2012
Scott Butcher, , Austin, TX
Wed Jun 22, 2011

There are 4 basic options available at this time: USDA (up to 100% LTV), VA (up to 100%), FHA up to 96.5% LTV) and Conventional up to 95% options. If your not a Veteran then VA is off the table, and it sounds like USDA isn't an options. Unless, you have an 680 or higher credit score, then FHA might just be your best bet.

Another option for you would be a HOMEPATH loan http://(www.homepath.com) whereby you can get up to 97% financing without paying mortgage insurance. The drawback is that you must purchase a Fannie Mae REO property to be able to use HOMEPATH. This will limit your homebuying choices but you can check their website to find homes that might fit your needs.

Also, HOMEPATH interest rates are typically about 1% - 1.5% higher than FHA loans, so if you plan on staying in the home for over 7 years, I'd say FHA is better because you get the benefit of paying less when the mortgage insurance expires and your interest rate is lower.

Hope this helps.
0 votes
Annette Bent…, Agent, Orlando, FL
Wed Jun 15, 2011
Since you have found out that your home does not qualify for USDA financing, then FHA would be your next best option in terms of the minimal amount you will have to put down. A conventional loan would typically require 20% down. The best thing to do is to discuss your options with your lender.
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