FHA loans; why not?

[an]

[quote=scaredycat]so, what do the numbers look like, say on a 250,000 house. fha w/3.5%, reg 20% loan. How much more a month is it? and does the PMI expire in 5 years?[/quote]
To do a quick comparison, I search around the net for current FHA rate and conventional loan rates. FHA right now is 5.375% and conventional is 4.75%. Both of these rates assume you can qualify and 0 points for both to keep it simple. With the both loans, my calculation is based on 0% down only to eliminate the opportunity cost of the down payment variable. The rate however was for a 20% down for conventional and 3.5% down for FHA. The loan amount is use is $400k.

Conventional loan monthly payment – $2086
FHA loan monthly payment + MMI = $2405

The 1.5% loan fee for FHA is ~$6000.

So, the monthly cost difference is $319/month + $6k initial cost. Every year you don’t walk away, you’re paying $3828 more than you need to. If you plan on walking away, wouldn’t it be cheapest to just rent and wait for the market to crash some more? Even w/ FHA, walking will cost at least $20k, not counting every month you live there, that’s another $319. Do you think this extra cost is worth it to give you an option to walk away?

[scaredyclassic]

3,828 a year (plus 6k rolled into loan) v. paying 16.5% of 250k (20-3.5%) upfront (about 40,000.) So it takes me over 10 years to get my down payment back, just based on the cheaper payments for conventional financing. that’s a long time. I cannot buy earthquake insurance for 3,828. it just seems like it should take less than a decade to get the money back (which makes me think FHA money is way too cheap). plus, doesn’t the premium get cancelled when my equity theoretically reaches around 20%? to me?

the 6,000 rolled into the loan is just pretend money. it’s the 20% down that hurts to relinquish. from the point of view of someone who will walk if things continue to decay, who cares if 6k is added to the loan balance? it’s the same to walk away from 250 as 256. plus, the 3828 is tax deductible right? so it’s not really 3828 a year extra to pay to get to walk away. What am I missing? don’t most people leave by a decade anyway? how is conventional financing even competitive with FHA under current circumstances? Only for people who know for certain they will be in the house multi-decades?

from another perspective, that’s 40,000 earning 3,828. i guess that’s about 10%.from that perspective it looks good. however, I lose the tax savings i would ahve gotten had i paid 3828. so is it really earning about 2500 a year? if so, the 6% looks less enticing. id rather roll the dice on gold.

[scaredyclassic]

3,828 a year (plus 6k rolled into loan) v. paying 16.5% of 250k (20-3.5%) upfront (about 40,000.) So it takes me over 10 years to get my down payment back, just based on the cheaper payments for conventional financing. that’s a long time. I cannot buy earthquake insurance for 3,828. it just seems like it should take less than a decade to get the money back (which makes me think FHA money is way too cheap). plus, doesn’t the premium get cancelled when my equity theoretically reaches around 20%? to me?

the 6,000 rolled into the loan is just pretend money. it’s the 20% down that hurts to relinquish. from the point of view of someone who will walk if things continue to decay, who cares if 6k is added to the loan balance? it’s the same to walk away from 250 as 256. plus, the 3828 is tax deductible right? so it’s not really 3828 a year extra to pay to get to walk away. What am I missing? don’t most people leave by a decade anyway? how is conventional financing even competitive with FHA under current circumstances? Only for people who know for certain they will be in the house multi-decades?

from another perspective, that’s 40,000 earning 3,828. i guess that’s about 10%.from that perspective it looks good. however, I lose the tax savings i would ahve gotten had i paid 3828. so is it really earning about 2500 a year? if so, the 6% looks less enticing. id rather roll the dice on gold.

[scaredyclassic]

3,828 a year (plus 6k rolled into loan) v. paying 16.5% of 250k (20-3.5%) upfront (about 40,000.) So it takes me over 10 years to get my down payment back, just based on the cheaper payments for conventional financing. that’s a long time. I cannot buy earthquake insurance for 3,828. it just seems like it should take less than a decade to get the money back (which makes me think FHA money is way too cheap). plus, doesn’t the premium get cancelled when my equity theoretically reaches around 20%? to me?

the 6,000 rolled into the loan is just pretend money. it’s the 20% down that hurts to relinquish. from the point of view of someone who will walk if things continue to decay, who cares if 6k is added to the loan balance? it’s the same to walk away from 250 as 256. plus, the 3828 is tax deductible right? so it’s not really 3828 a year extra to pay to get to walk away. What am I missing? don’t most people leave by a decade anyway? how is conventional financing even competitive with FHA under current circumstances? Only for people who know for certain they will be in the house multi-decades?

from another perspective, that’s 40,000 earning 3,828. i guess that’s about 10%.from that perspective it looks good. however, I lose the tax savings i would ahve gotten had i paid 3828. so is it really earning about 2500 a year? if so, the 6% looks less enticing. id rather roll the dice on gold.

[scaredyclassic]

3,828 a year (plus 6k rolled into loan) v. paying 16.5% of 250k (20-3.5%) upfront (about 40,000.) So it takes me over 10 years to get my down payment back, just based on the cheaper payments for conventional financing. that’s a long time. I cannot buy earthquake insurance for 3,828. it just seems like it should take less than a decade to get the money back (which makes me think FHA money is way too cheap). plus, doesn’t the premium get cancelled when my equity theoretically reaches around 20%? to me?

the 6,000 rolled into the loan is just pretend money. it’s the 20% down that hurts to relinquish. from the point of view of someone who will walk if things continue to decay, who cares if 6k is added to the loan balance? it’s the same to walk away from 250 as 256. plus, the 3828 is tax deductible right? so it’s not really 3828 a year extra to pay to get to walk away. What am I missing? don’t most people leave by a decade anyway? how is conventional financing even competitive with FHA under current circumstances? Only for people who know for certain they will be in the house multi-decades?

from another perspective, that’s 40,000 earning 3,828. i guess that’s about 10%.from that perspective it looks good. however, I lose the tax savings i would ahve gotten had i paid 3828. so is it really earning about 2500 a year? if so, the 6% looks less enticing. id rather roll the dice on gold.

[scaredyclassic]

3,828 a year (plus 6k rolled into loan) v. paying 16.5% of 250k (20-3.5%) upfront (about 40,000.) So it takes me over 10 years to get my down payment back, just based on the cheaper payments for conventional financing. that’s a long time. I cannot buy earthquake insurance for 3,828. it just seems like it should take less than a decade to get the money back (which makes me think FHA money is way too cheap). plus, doesn’t the premium get cancelled when my equity theoretically reaches around 20%? to me?

the 6,000 rolled into the loan is just pretend money. it’s the 20% down that hurts to relinquish. from the point of view of someone who will walk if things continue to decay, who cares if 6k is added to the loan balance? it’s the same to walk away from 250 as 256. plus, the 3828 is tax deductible right? so it’s not really 3828 a year extra to pay to get to walk away. What am I missing? don’t most people leave by a decade anyway? how is conventional financing even competitive with FHA under current circumstances? Only for people who know for certain they will be in the house multi-decades?

from another perspective, that’s 40,000 earning 3,828. i guess that’s about 10%.from that perspective it looks good. however, I lose the tax savings i would ahve gotten had i paid 3828. so is it really earning about 2500 a year? if so, the 6% looks less enticing. id rather roll the dice on gold.

[Adebisi]

I see that AN left out the return you could get on that $40K down payment if you invested it in something as opposed to putting it into a depreciating house.

Just think what that $40K could do in gold. You could double your money in 5 years.

I think I’m starting to see how AN came to have complete, total, and unquestioned faith in HLS. He’s clearly not the smartest cookie in the bowl.

[Adebisi]

I see that AN left out the return you could get on that $40K down payment if you invested it in something as opposed to putting it into a depreciating house.

Just think what that $40K could do in gold. You could double your money in 5 years.

I think I’m starting to see how AN came to have complete, total, and unquestioned faith in HLS. He’s clearly not the smartest cookie in the bowl.

[Adebisi]

I see that AN left out the return you could get on that $40K down payment if you invested it in something as opposed to putting it into a depreciating house.

Just think what that $40K could do in gold. You could double your money in 5 years.

I think I’m starting to see how AN came to have complete, total, and unquestioned faith in HLS. He’s clearly not the smartest cookie in the bowl.

[Adebisi]

I see that AN left out the return you could get on that $40K down payment if you invested it in something as opposed to putting it into a depreciating house.

Just think what that $40K could do in gold. You could double your money in 5 years.

I think I’m starting to see how AN came to have complete, total, and unquestioned faith in HLS. He’s clearly not the smartest cookie in the bowl.

[Adebisi]

I see that AN left out the return you could get on that $40K down payment if you invested it in something as opposed to putting it into a depreciating house.

Just think what that $40K could do in gold. You could double your money in 5 years.

I think I’m starting to see how AN came to have complete, total, and unquestioned faith in HLS. He’s clearly not the smartest cookie in the bowl.

[scaredyclassic]

the other problem with the 6-10% return theory is that if the housing market recovers, doesn’t my FHA payment go down? so Im not really guaranteed i pay more with fha, only if the market doesn’t recover and i don’t have an equity stake high enough to cancel out the higher loan payment with FHA.

for instance. what if housing goes up 20% in 5 years? then the FHA PMI is cancelled out. I’m not paying more per month. if i only get the 3828 benefit annually for 5 years, then I saved 19,000. net loss, 21,000, since I put down 40k to save 19k, not counting the 6k premium that’s done when we settle up. So not only am I not getting anything, I’m LOSING money by putting money down. IS THIS A POSSIBLE SCENARIO? if so, and it is even somewhat likely, it seems insane to put down 20% Seems like putting 20% down is kind of a bet that housing will continue to go down, in regard to the choice between fha and conventional, since the benefit from 20% down only accrues relative to fha if housing continues to tank. But if housing continues to tank, that seem to militate in favor of FHA.

what am I missing? i would hate to put down 20% and figure out afterwards that it was absolutely irrational. I really appreciate input from people who’ve thought this through more deeply than me…

[scaredyclassic]

the other problem with the 6-10% return theory is that if the housing market recovers, doesn’t my FHA payment go down? so Im not really guaranteed i pay more with fha, only if the market doesn’t recover and i don’t have an equity stake high enough to cancel out the higher loan payment with FHA.

for instance. what if housing goes up 20% in 5 years? then the FHA PMI is cancelled out. I’m not paying more per month. if i only get the 3828 benefit annually for 5 years, then I saved 19,000. net loss, 21,000, since I put down 40k to save 19k, not counting the 6k premium that’s done when we settle up. So not only am I not getting anything, I’m LOSING money by putting money down. IS THIS A POSSIBLE SCENARIO? if so, and it is even somewhat likely, it seems insane to put down 20% Seems like putting 20% down is kind of a bet that housing will continue to go down, in regard to the choice between fha and conventional, since the benefit from 20% down only accrues relative to fha if housing continues to tank. But if housing continues to tank, that seem to militate in favor of FHA.

what am I missing? i would hate to put down 20% and figure out afterwards that it was absolutely irrational. I really appreciate input from people who’ve thought this through more deeply than me…

[scaredyclassic]

the other problem with the 6-10% return theory is that if the housing market recovers, doesn’t my FHA payment go down? so Im not really guaranteed i pay more with fha, only if the market doesn’t recover and i don’t have an equity stake high enough to cancel out the higher loan payment with FHA.

for instance. what if housing goes up 20% in 5 years? then the FHA PMI is cancelled out. I’m not paying more per month. if i only get the 3828 benefit annually for 5 years, then I saved 19,000. net loss, 21,000, since I put down 40k to save 19k, not counting the 6k premium that’s done when we settle up. So not only am I not getting anything, I’m LOSING money by putting money down. IS THIS A POSSIBLE SCENARIO? if so, and it is even somewhat likely, it seems insane to put down 20% Seems like putting 20% down is kind of a bet that housing will continue to go down, in regard to the choice between fha and conventional, since the benefit from 20% down only accrues relative to fha if housing continues to tank. But if housing continues to tank, that seem to militate in favor of FHA.

what am I missing? i would hate to put down 20% and figure out afterwards that it was absolutely irrational. I really appreciate input from people who’ve thought this through more deeply than me…

[scaredyclassic]

the other problem with the 6-10% return theory is that if the housing market recovers, doesn’t my FHA payment go down? so Im not really guaranteed i pay more with fha, only if the market doesn’t recover and i don’t have an equity stake high enough to cancel out the higher loan payment with FHA.

for instance. what if housing goes up 20% in 5 years? then the FHA PMI is cancelled out. I’m not paying more per month. if i only get the 3828 benefit annually for 5 years, then I saved 19,000. net loss, 21,000, since I put down 40k to save 19k, not counting the 6k premium that’s done when we settle up. So not only am I not getting anything, I’m LOSING money by putting money down. IS THIS A POSSIBLE SCENARIO? if so, and it is even somewhat likely, it seems insane to put down 20% Seems like putting 20% down is kind of a bet that housing will continue to go down, in regard to the choice between fha and conventional, since the benefit from 20% down only accrues relative to fha if housing continues to tank. But if housing continues to tank, that seem to militate in favor of FHA.

what am I missing? i would hate to put down 20% and figure out afterwards that it was absolutely irrational. I really appreciate input from people who’ve thought this through more deeply than me…

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