Need advice....approved but looking for options

[frank784]

Looking to purchase a home after a foreclosure that closed Feb 1, 2014. 

Went to local credit union today for my prequal for a 300K house. The pulled all three scored and took the median score of 676. As we were figuring the PMI which was ridicuously high, we called the underwriter (She did my auto loan years ago so I have a good relationship) and she told me that since they go through Fannie Mae I can't qualify for a loan since my foreclosure isn't 7 years old. She did say that I was approved for inhouse financing and gave me my prequal letter for the 300K but with 10% down and a 20 year term at 5.875 percent fixed rate. Since it's an inhouse loan I would avoid PMI all together.

My questions are as follows: 

1. Should I be trying to go FHA instead as they can approve after 3 years foreclosure? Only hurdle would be my job history in the last two years. I left my current company for three months but have been back for almost a year now. Same type of work with the move though. 

2. Has anyone has experience with Fannie Mae and the exception to the 7 year foreclosure rule? Their rule changes to 3 years with an extenuating circumstance. The reason I foreclosured years ago was due to family medical issues. Long story short my father had kidney disease and I helped with the medical bills. I pretty much stopped paying everything, moved across the country, and decided to fix the credit stuff later.

3. Would you recommend just staying with the credit union and putting the 10% down?

My income varies and they are using my lowest year of $80K for the DTI so I do qualify for about $2300/month with them. 

I have roughly $66,000 in the bank. The 10% down with closing will be about $35K. Although I can come up with the down payment I would feel more comfortable putting down 3.5-5% keeping the out of pocket fees under $20K. 

Any suggestions are appreciated. 

Thanks. 

[VALoanMaster]

---

@frank784 wrote:

Looking to purchase a home after a foreclosure that closed Feb 1, 2014. 

Went to local credit union today for my prequal for a 300K house. The pulled all three scored and took the median score of 676. As we were figuring the PMI which was ridicuously high, we called the underwriter (She did my auto loan years ago so I have a good relationship) and she told me that since they go through Fannie Mae I can't qualify for a loan since my foreclosure isn't 7 years old. She did say that I was approved for inhouse financing and gave me my prequal letter for the 300K but with 10% down and a 20 year term at 5.875 percent fixed rate. Since it's an inhouse loan I would avoid PMI all together.

My questions are as follows: 

1. Should I be trying to go FHA instead as they can approve after 3 years foreclosure? Only hurdle would be my job history in the last two years. I left my current company for three months but have been back for almost a year now. Same type of work with the move though. 

2. Has anyone has experience with Fannie Mae and the exception to the 7 year foreclosure rule? Their rule changes to 3 years with an extenuating circumstance. The reason I foreclosured years ago was due to family medical issues. Long story short my father had kidney disease and I helped with the medical bills. I pretty much stopped paying everything, moved across the country, and decided to fix the credit stuff later.

3. Would you recommend just staying with the credit union and putting the 10% down?

My income varies and they are using my lowest year of $80K for the DTI so I do qualify for about $2300/month with them. 

I have roughly $66,000 in the bank. The 10% down with closing will be about $35K. Although I can come up with the down payment I would feel more comfortable putting down 3.5-5% keeping the out of pocket fees under $20K. 

Any suggestions are appreciated. 

Thanks. 

---

Hi Frank,

If you look at the numbers, the payment for an FHA loan is about the same as what your CU is offering you but you're also putting more money down with the CU option.

Here's what I'm talking about.

The CU offer at 5.875% with 10% down gives you a PI payment of $1,914.94 while the FHA payment with the FHA mortgage insurance & only 3.5% down would be $1,567.24.

So you get a $347.70 per month lower payment & you get to keep $19,500 in your pocket to go FHA. Plus underwriting will be a little easier going FHA in my opinion.

Here's one more.

If you did FHA with 10% down, your estimated payment with the FHA MI would be $1,452.29.

[StartingOver10]

^^^+100 to what VALoanMaster said.  One more thing, if you do put down 10% with the FHA loan, your mortgage insurance payment drops off after 11 years. If you put down less than 10%, it stays for the life of the loan. It's a good plan in a rising interest rate market if you plan to be in the home long term.

[frank784]

Thanks for the replies. 

My figures show that if I did FHA with 3.5% down the payment would be $1293.27 plus the PMI. My credit union gave me a quote initially of anywhere from $180 - $440 ish for PMI depending on downpayment. 10% down was $180/month and 3% down was $440 (we would looking at conforming loan originally with 3% down). 

Is PMI usually this much of a variable? My friend just bought a house very similar with a higher purchase price and he is at $150/month with FHA with 3.5% down. 

Thanks again. 

[VALoanMaster]

---

@frank784 wrote:

Thanks for the replies. 

My figures show that if I did FHA with 3.5% down the payment would be $1293.27 plus the PMI. My credit union gave me a quote initially of anywhere from $180 - $440 ish for PMI depending on downpayment. 10% down was $180/month and 3% down was $440 (we would looking at conforming loan originally with 3% down). 

Is PMI usually this much of a variable? My friend just bought a house very similar with a higher purchase price and he is at $150/month with FHA with 3.5% down. 

Thanks again. 

---

Yes, PMI will vary depending on credit score & loan to value on conventional loans. It's all based on the PMI company's perceived risk.

FHA will only go down slightly if you put 10% or more down.

On a $300,000 purchase with 3.5% down, the FHA MI would be $205.06 & with 10% down it would be $180 per month. It goes down slightly because FHA charges a little less but more so because it's based on the loan amount & you're financing less with 10% down.

[frank784]

Ok great. Is there a reason I was getting the quotes in the $440s and higher with the 3% down....the loan was for a 30 year conforming from the credit union through Fannie Mae. 

$200 ish a month makes sense but $440 plus is a deal breaker for me. 

Lastly, I'm trying to do a search for lenders that do FHA loans. According to Chase the federal requirment for FHA loans is 3 years after foreclosure, but each lender sets their own rules. Chase uses a 4 year post foreclosure rule. I'm currently searching for other lenders that would approve after 3 years with FHA. 

I'm also looking into combo loans, but not sure if FHA does that as well.....was thinking 80% 1st Mortgage, 15% second, 5% down payment. If I could make that scenario work that might be ideal. I would only be out of pocket 5% and then I would avoid PMI in general. 

Thanks again for all the help!!! 

[VALoanMaster]

---

@frank784 wrote:

Ok great. Is there a reason I was getting the quotes in the $440s and higher with the 3% down....the loan was for a 30 year conforming from the credit union through Fannie Mae. 

$200 ish a month makes sense but $440 plus is a deal breaker for me. 

Lastly, I'm trying to do a search for lenders that do FHA loans. According to Chase the federal requirment for FHA loans is 3 years after foreclosure, but each lender sets their own rules. Chase uses a 4 year post foreclosure rule. I'm currently searching for other lenders that would approve after 3 years with FHA. 

I'm also looking into combo loans, but not sure if FHA does that as well.....was thinking 80% 1st Mortgage, 15% second, 5% down payment. If I could make that scenario work that might be ideal. I would only be out of pocket 5% and then I would avoid PMI in general. 

Thanks again for all the help!!! 

---

1) Yes, the PMI companies charge more for higher loan to value loans ( see 3% down) VS say 10% down & the charge a higher premium for lower scores. Your PMI goes down if you put 10% down but you're still paying a higher premium because of your score. If you had a 740 score & you put 10% down, your monthly PMI would be substantially lower.

2) Chase does have some pretty stiff overlays in part because they simply don't want to do FHA loans. Google Jamie Diimon FHA to see what I'm talking about. Most lenders follow the base guidelines for FHA, VA, Fannie & Freddie when it comes to the time frames for foreclosure & bankruptcies.

3) What state are you buying in? A lot of lenders that offer 2nd mortgages require higher scores due to their risk so you may not qualify or you may be limited to a 10% 2nd. 

Does that make sense?

[frank784]

It does make sense. I live in WI and with my scores/dti initially/relationship with the bank the 80/15/5 down sounded like it would work but when I talked to the underwriter she said I would get rejected due to the foreclosure since it hasn't been 7 years....it's Fannie Mae. 

My DTI and cash on hand is helping some and my scores are not so I can see why things are higher. 

Would you agree that Credit unions would be my best bet? My credit union doesnt touch FHA but another local one does. I am going to talk to them on Tuesday. 

I guess if you would have any suggestions for me to have the lowest out of pocket with the most reasonable payment with or without PMI?  Suggestions are appreciated. 

I just hate parting with 35k vs maybe 20K for a difference of $200 a month. Now if the PMI is going to be $400 plus with only a 5% down payment that's a different scenario in general. 

Thanks. 

[H-B]

FHA would be good option.  You may go  for conventional with extenuating circumstance. Make sure your file under written with this exception on TBD property. 

[frank784]

I'm going to call my credit union on Monday and ask about the extenuating circumstances for the conventional loan. If that were the case I would love to get approved under the 80/15/5% down that we talked about earlier. Seems like it would be a win all around. 

If that's not a good I want to shop around with other credit unions to see if they can beat the current rate I was quote for 20 years @ 5.875% with 10% down. That's an inhouse loan so I'm sure other credit unions have similiar programs. When I looked at some other local ones online their rates go as low as 3.75% for the 20 year fixed. 

I know my score of 676 isn't great but the two point difference is reflecting approximately $280/month. If I can shop around and get something lower it's very adventageous. 

My gut feeling is if I can prove why I foreclosed prior (Father's kidney disease) and the loan gets to the underwriter that I know I will get it pushed through.

My father and step mom have had accounts with them for about 7 years and have multuple auto loans that they have paid in full.

Any other recommendations are appreciated.

Thanks