topic Re: FHA or CONVENTIONAL ? in Mortgage Loans

FHA or CONVENTIONAL ?

sports1965 — Wed, 22 Apr 2015 23:02:49 GMT

BK7 discharged 5 years ago in december

2 medical collections

Mortgage middle score is 670

3.5% or 5% down payment possible

Whats the best option ? FHA or CONVENTIONAL?

Thanks

Re: FHA or CONVENTIONAL ?

StartingOver10 — Wed, 22 Apr 2015 23:07:22 GMT

FHA has MI for the life of the loan.

Conventional MI drops off automatically at 78% LTV. You can request it to drop off at 80%

Is this a long term purchase or a short term one?

Best to compare terms between the two. But if it were me, I would go conventional if possible.

Re: FHA or CONVENTIONAL ?

sports1965 — Thu, 23 Apr 2015 01:27:41 GMT

Long term

Isnt Conventional MI a lot more than FHA MI if middle score is under 700?

What about interest rates?

Re: FHA or CONVENTIONAL ?

StartingOver10 — Thu, 23 Apr 2015 02:11:36 GMT

@sports1965 wrote:
Long term
Isnt Conventional MI a lot more than FHA MI if middle score is under 700?
What about interest rates?

Yes, if your score is less than 700 the MI will be higher on conventional.

The interest rate is typically less on FHA and now the MI rate on FHA is lower too since Jan 26 2015. That's why I asked if it was long term or short term. FHA MI stays on now for the life of the loan - with one exception, if you finance 90% or less (rather than the full 96.5%) the MI drops off after 11 years.

If you can get a seller contribution for your cc & pp's then use the funds that you were going to use for cc toward dp, it brings you pretty close to the 10% required on the FHA loan so that the MI will drop off after 11 years. If you can do this option you would be locking in a very low interest rate for a very long time that you would never need to refi.

I don't know the whole situation, but it is worth running the figures both ways since it is a long term purchase.

Note: People mention about refinancing in a few years to a conventional loan but that isn't always possible (look what happened in the 2003 to 2007 run up and subsequent drop).

Re: FHA or CONVENTIONAL ?

Anonymous — Thu, 23 Apr 2015 03:48:53 GMT

Does the MI drop off after 12 years or a certain percentage is paid?
I read somewhere that if you pay x% the MI drops off.

Re: FHA or CONVENTIONAL ?

StartingOver10 — Thu, 23 Apr 2015 13:19:52 GMT

@Anonymous wrote:
Does the MI drop off after 12 years or a certain percentage is paid?
I read somewhere that if you pay x% the MI drops off.

On FHA if you borrow 90% or less (rather than just put the minimum down), then the MI drops off after 11 years.

On conventional loans it automatically drops off after your LTV reaches 78%. You can request it to drop off after you reach 80%. The lender will have to verify by having an appraisal done.

Re: FHA or CONVENTIONAL ?

bhnole — Thu, 23 Apr 2015 13:53:01 GMT

What is the minimum credit score for the 5% conventional?

Re: FHA or CONVENTIONAL ?

ezdriver — Thu, 23 Apr 2015 14:40:52 GMT

My instincts tell me that FHA is the better route at that score level. Best to have a loan officer provide a detailed comparion for you.

Re: FHA or CONVENTIONAL ?

StartingOver10 — Thu, 23 Apr 2015 14:56:19 GMT

@bhnole wrote:
What is the minimum credit score for the 5% conventional?

AFAIK, the min score is 620 for a conventional loan. However, you will get hit pretty hard on the rate and PMI rate. I have heard that the interest rate and PMI rate improve greatly if your score is above 680 and you get much better PMI rates at 720 or above. You get the best PMI rates at 760 and above.

PMI is a whole different approval process on top of the lender approval process. The lender submits your file to one of a very few PMI companies for them to accept or reject insuring the loan.

For FHA MIP (Mortgage Insurance Premium) is automatic and the same rate regardless of the score.

Re: FHA or CONVENTIONAL ?

Anonymous — Tue, 28 Apr 2015 02:41:39 GMT

Just FYI - my lender allowed me to 'buy out' the PMI up front by taking a higher rate .125. It was worth it for us. So it's worth seeing if there are other options with conventional.

Re: FHA or CONVENTIONAL ?

StartingOver10 — Tue, 28 Apr 2015 14:27:26 GMT

@Anonymous wrote:
Just FYI - my lender allowed me to 'buy out' the PMI up front by taking a higher rate .125. It was worth it for us. So it's worth seeing if there are other options with conventional.

^^^yes. There are a couple of solutions for PMI.

Lender Paid Mortgage Insurance (LPMI)
Borrower Paid Mortgage insurance - monthly or a one time fee

If you have a seller contribution toward your closing costs, this can be a good option: one time fee paid at closing using the seller contribution.

Speak with your LO and run the numbers to see what works best for you.

Re: FHA or CONVENTIONAL ?

Anonymous — Tue, 28 Apr 2015 15:44:34 GMT

You are kind of teetering on the middle of the seesaw here. With your credit and that size downpayment, FHA may give you a slightly lower payment up front, but the PMI will eventually drop off with conventional. If you truly see yourself staying here 10+ years, I would do a little bit of work to your credit to get to at least 680 and then go conventional.

Re: FHA or CONVENTIONAL ?

bhnole — Tue, 28 Apr 2015 18:49:03 GMT

@StartingOver10 wrote:
@bhnole wrote:
What is the minimum credit score for the 5% conventional?
AFAIK, the min score is 620 for a conventional loan. However, you will get hit pretty hard on the rate and PMI rate. I have heard that the interest rate and PMI rate improve greatly if your score is above 680 and you get much better PMI rates at 720 or above. You get the best PMI rates at 760 and above.

PMI is a whole different approval process on top of the lender approval process. The lender submits your file to one of a very few PMI companies for them to accept or reject insuring the loan.

For FHA MIP (Mortgage Insurance Premium) is automatic and the same rate regardless of the score.

Just got a collection item deleted that got my mid score up to 724 which was a real turnover 5 years post chapt 7. Just hope the mid score holds over 720 now with Mortgage inquiries. Wells Fargo confirmed the mid score yesterday for me during the pre approval process.

So far I have been quoted 4% (Wells Fargo) and 4.25% (Mortgage Broker) interest rates on a 30 years fixed with 5% down. Should I expect a better rate once I get a contract and start the formal application process?

Re: FHA or CONVENTIONAL ?

StartingOver10 — Tue, 28 Apr 2015 18:57:47 GMT

@bhnole wrote:
@StartingOver10 wrote:
@bhnole wrote:
What is the minimum credit score for the 5% conventional?
AFAIK, the min score is 620 for a conventional loan. However, you will get hit pretty hard on the rate and PMI rate. I have heard that the interest rate and PMI rate improve greatly if your score is above 680 and you get much better PMI rates at 720 or above. You get the best PMI rates at 760 and above.

PMI is a whole different approval process on top of the lender approval process. The lender submits your file to one of a very few PMI companies for them to accept or reject insuring the loan.

For FHA MIP (Mortgage Insurance Premium) is automatic and the same rate regardless of the score.
Just got a collection item deleted that got my mid score up to 724 which was a real turnover 5 years post chapt 7. Just hope the mid score holds over 720 now with Mortgage inquiries. Wells Fargo confirmed the mid score yesterday for me during the pre approval process.

So far I have been quoted 4% (Wells Fargo) and 4.25% (Mortgage Broker) interest rates on a 30 years fixed with 5% down. Should I expect a better rate once I get a contract and start the formal application process?

Rates fluxuate until you have a contract and can lock in so right now your rates are market rate. I am surprised the mortgage broker rate is higher. Is he just a broker or does he fund his own loans too?

I am not a fan of WF because they give out pre-approvals all the time and then have difficulty closing. Find a good mortgage banker (someone that originates and funds their own loans). WF is great at servicing mortgages. They buy a lot of mortgages after they are originated. Work with a mortgage banker that sells to Wells. You will have a better experience.

Re: FHA or CONVENTIONAL ?

bhnole — Tue, 28 Apr 2015 19:08:16 GMT

@StartingOver10 wrote:

Rates fluxuate until you have a contract and can lock in so right now your rates are market rate. I am surprised the mortgage broker rate is higher. Is he just a broker or does he fund his own loans too?

I am not a fan of WF because they give out pre-approvals all the time and then have difficulty closing. Find a good mortgage banker (someone that originates and funds their own loans). WF is great at servicing mortgages. They buy a lot of mortgages after they are originated. Work with a mortgage banker that sells to Wells. You will have a better experience.

They fund but he mentioned it was higher than what he would give if we were locking in right now. I was looking for a payment guestimate and he was using a higher rate since he had no idea whether rates will hold with the Fed meeting this week.

Re: FHA or CONVENTIONAL ?

StartingOver10 — Tue, 28 Apr 2015 19:46:11 GMT

@bhnole wrote:

They fund but he mentioned it was higher than what he would give if we were locking in right now. I was looking for a payment guestimate and he was using a higher rate since he had no idea whether rates will hold with the Fed meeting this week.
^^^That is the right start. He originates and funds his own deals. Also he is giving you a payment using a slightly higher rate to account for the Fed meeting so he seems to be thinking through the whole situation. It is better IMO that he quote you at 4.25% and then when you find a place if the rate is lower lock you in at the lower rate. That way you are pleasantly surprised. That's the kind of LO I work with too -