What loan would you do???

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Submitted by GoUSC on June 29, 2009 - 9:08am

In light of the rates today, economics today, etc. I need some advice on loans. We are looking at a house and we could do either an FHA loan or conventional. We have plenty of money to put 20% down plus have healthy reserves in the bank. If we did FHA we could have even more in the bank. our ratios either way are way conservative so that's not an issue. There are several major things I would do if we had the FHA that I wouldn't do if we did the conventional including a two-car garage (doesn't have one now).

So my question is, do we do the FHA and the associated costs (1.5% pt. premium plus monthly insurance fee which is around 0.5%) and make the upgrades or do we stick with the conventional 20%. I am leaning towards FHA because we can take bigger advnantage of the interest write-off and, from a historical point, the cost of money is very low right now.

Also we would use our bonuses to pay down the loan as quick as possible. We both have stable well paying jobs.

Thanks for any advice.

‹ "hot" home sales are actually smoldering remains Has anyone actually used Redfin to purchase a home? Interested to hear what your experience was ›
Conventional. You'll have
Submitted by JACKQLYN on June 29, 2009 - 9:37am.

Conventional. You'll have more leverage while placing offers.

It depends on the numbers: a)
Submitted by mgoldberg on June 29, 2009 - 9:40am.

It depends on the numbers:

a) I'd RENT if the sales price is >750k. Many believe the price will continue to go down in this price range

b) 20% DOWN. You say you have great jobs and can pay down the loan quickly. Why not avoid the large hit for FHA, keep monthly costs down, and save up quickly for your two car garage.

c) FHA. If you are going to live there for only a few years. This way the FHA hits won't hurt so bad, plus you can walk if it goes down in value by a large amount.

If your main reason for going
Submitted by AN on June 29, 2009 - 10:04am.

If your main reason for going FHA is to keep your asset liquid, then why pay off the loan early? Wouldn't you want to pay the minimum required? I'd personally would go w/ the 20% conventional. I think those extra cost is just a waste of $, especially if you think you have a stable job and can easily afford the payment.

Our offer is actually
Submitted by GoUSC on June 29, 2009 - 11:07am.

Our offer is actually all-cash so loan type won't make a difference. We are then going to put financing on it.

Our reasoning behind the FHA structure is that I am of the opinion that cash is king, especially right now. The FHA loan is cheap money and the overall costs are minimal. If my fiancee gets the bonus she is expecting this year then we would use it to pay down the loan to less than 80% LTV and get rid of the insurance cost.

I have heard the interest rate is very close if not the same to traditional financing.

FYI the game plan is to hold the house for a few years then rent it out and buy our next house. Of course that all depends on where the market goes, where our jobs go, etc.

Sounds like you don't need
Submitted by mgoldberg on June 29, 2009 - 3:02pm.

Sounds like you don't need advice, you're all set. Best of luck with your purchase.

I was told that you have to
Submitted by propertysearcha... on June 29, 2009 - 3:13pm.

I was told that you have to pay PMI for 2 years even if the LTV is at 80%. I was also told it was 78% LTV. You might want to confirm with a loan officer just so you aren't disappointed with all of the FHA rules.
Personally, I don't like that you can't waive escrow on FHA so you will have taxes and insurance included in your monthly payment. I would rather keep the cash and pay it every 6 months.

FHA with a minimum down
Submitted by patientrenter on June 29, 2009 - 5:09pm.

FHA with a minimum down payment sounds good. You can walk away if prices go down a lot more. Why are FHA terms not being offered by purely private parties? Because the implicit at-the-money put option given to you by that FHA loan is very valuable, and FHA is underpricing it. Take advantage.

You can always be bullish and
Submitted by jpinpb on June 29, 2009 - 5:45pm.

You can always be bullish and go FHA and maybe prices will go up 20% and there you go :)

If it continues to go down, you've lost money that maybe would come in handy later.