topic Re: Where is the crossover point between FHA and Conv Mortgage in Mortgage Loans

Where is the crossover point between FHA and Conv Mortgage

Anonymous — Fri, 19 Jul 2019 13:14:18 GMT

First time poster, long time lurker.

My wife and I are finishing off paying down our CC debt (has gone from $25k to $5k in 12 months) and are ready to apply for a house.

My wife has just got a pay increase that takes us right to the $82,700 USDA limit. I think at last projection we would make $82,500 this year, and the likelyhood is we will get a least a little overtime that will force us over the limit, So we are forced to look at FHA.

All our mortgage scores according to FICO are around 740, but we of course won't have anymore than the 3.5% down. Is there a crossover point between FHA and Conv mortgages here? Which one would be 'better' for us?

Would qualifying for a Conv mortgage come with a lower interest rate? Could we get a conv mortgage without the full 20% down? We're are looking at 160-200k house in our area.

Thanks in advance!

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Fri, 19 Jul 2019 14:37:35 GMT

With your scores and income, you should look at conventional mortgages. Conventional mortgages usually require only 5% down.

The benefits over FHA are lower rates, no UMIP, and temporary PMI. Additionally, some sellers prefer buyers with conventional pre-approval because the FHA has stricter appraisal and repair requirements.

Re: Where is the crossover point between FHA and Conv Mortgage

NC_Mtg_Loaner — Fri, 19 Jul 2019 14:42:55 GMT

You can obtain a conventional mortgage loan with < 20% down payment.

FNMA and Freddie Mac both have 3% down conventional mortgage loans that you may qualify for depending upon the median income in the area which you live OR if the property is already in an eligible area, so have your LO look into that for you.

FNMA and Freddie Mac also have a 5% down conventional mortgage loan.

Anytime you obtain a loan and have < 20% down payment you will pay mortgage insurance, whether it's single premium, split premium, monthly premium or lender paid, it will be in there.

The way to compare FHA vs. Conventional (or any mortgage loan for that matter) is to compare APRs as this calculation is the way to measure the true cost of credit over the life of your loan. When the rubber hits the road, and you find the right lender, you are also likely to find that the APRs between both loan programs will be relatively comparable.

Perhaps a few different things that may factor into your decision is that when you pay < 10 % down for your home (and your loan) the seller concessions will be maxed at 3% for conventional vs. 6% for FHA so if you are somewhat low on your funds for down payment, by all means don't forget about the Closing Costs~especially if you need to negotiate your seller to pay some of them on your behalf.

And of course, FHA loans are assumable........some day, if / when interest rates ever rise, this could be an advantage--especially if you think the home you are purchasing might one day be sold to a friend or family member.

Congrats and good luck!

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Fri, 19 Jul 2019 15:02:18 GMT

So it sounds to me that the longer term gain of a slightly lower rate my be offset my a stiff increase in money that we have to fork over in closing. I realise that the lower interest rate should be a priority, but the time crunch that we have (my brother in laws enlistment in USMC ends in February and we are living in his house) means that we don't have all that much time after September when our CC are paid off to actually get things saved up.

Are we able to get pre-approved for an FHA loan before we actually have all of the money in the bank? I would have about $3k in savings (and no debt other than $265 car note) at the end of Ocotber, but if we're looking at neededing at least $10k for the DP and CCosts then it's more likely to be the end of December. Waiting until the end of Dec when we have to be out by 2/1 seems very very tight for closing.

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Fri, 19 Jul 2019 15:16:51 GMT

@NC_Mtg_Loaner wrote:
Perhaps a few different things that may factor into your decision is that when you pay < 10 % down for your home (and your loan) the seller concessions will be maxed at 3% for conventional vs. 6% for FHA so if you are somewhat low on your funds for down payment, by all means don't forget about the Closing Costs~especially if you need to negotiate your seller to pay some of them on your behalf.

And of course, FHA loans are assumable........some day, if / when interest rates ever rise, this could be an advantage--especially if you think the home you are purchasing might one day be sold to a friend or family member.

Congrats and good luck!

For a home in the OP's price range of 160-200k, even at 3%, that may be enough to cover most, if not all, closing costs. I think it's standard practice for most buyers to sellers to assist with closing costs.

As far as family and friends having the option of assuming the loan, what is the likelihood of that happening? Also, the assumer would be stuck with the interest rate from the old loan. Depending on market rates, this may not be a good thing. Lastly, the amount of cash upfront for the person assuming may make the whole thing unattractive. Suggested reading: https://michaelbluejay.com/house/assumption.html

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Fri, 19 Jul 2019 15:22:31 GMT

Yes I don't think assumption is going to be a factor for us. I have no children and my wifes are both grown.

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Fri, 19 Jul 2019 22:39:10 GMT

Honestly, you should work with officer to determine the best option. There are tons of conventional programs that require less than 20% down. All sellers aren’t fans of FHA loans. We are in the process of closing on a conventional loan with 0% down! The biggest rumor in the world is that you need 20% down for a conventional loan. There are a variety of programs with different terms based on your individual situation. Good luck!

Re: Where is the crossover point between FHA and Conv Mortgage

CreditInspired — Sat, 20 Jul 2019 12:19:52 GMT

@Anonymous wrote:
So it sounds to me that the longer term gain of a slightly lower rate my be offset my a stiff increase in money that we have to fork over in closing. I realise that the lower interest rate should be a priority, but the time crunch that we have (my brother in laws enlistment in USMC ends in February and we are living in his house) means that we don't have all that much time after September when our CC are paid off to actually get things saved up.

Are we able to get pre-approved for an FHA loan before we actually have all of the money in the bank? I would have about $3k in savings (and no debt other than $265 car note) at the end of Ocotber, but if we're looking at neededing at least $10k for the DP and CCosts then it's more likely to be the end of December. Waiting until the end of Dec when we have to be out by 2/1 seems very very tight for closing.

Hello and welcome to MyFICO

I swear NFCU should hire me the way I market their mortgages.

First, have BIL sponsor you at NFCU. If he already is a member perfect. If not, he only needs to become a member which can be done in less than 30 minutes. Once you’re sponsored, you pay $5 into savings and you’re a member. And, I would also open a checking acct with them. Why not, it’s free checking. Now comes the beautiful part if your credit profile is good.

NFCU has $0 down for their 30-yr fixed Homebuyers Choice mortgages with no PMI and conventional ARMs 3/5 or 5/5 with $0 down and no PMI. That’s not a typo.

And also, they offer Realty Plus, a real estate referral program that nets you a nice size bonus directly deposited into your savimgs account after closing.

Yes, ask your BIL to sponsor you today. And feel free to ask me any questions because I went the conventional ARM route in 2018. And I’ve never been happier.

Re: Where is the crossover point between FHA and Conv Mortgage

ldkcivilservant — Sat, 20 Jul 2019 21:38:25 GMT

Is joining NFCU a HP? If so, how would I explain that so soon to a mortgage application? My BIL is more than happy to supply the information, but I am concerned about the pull.

Re: Where is the crossover point between FHA and Conv Mortgage

CreditInspired — Sat, 20 Jul 2019 21:50:54 GMT

Joining is a SP. There is no explanation required for wanting to get a mortgage soon after joining. That’s the reason they’re a successful CU. They’re member oriented and want to help their members.

Re: Where is the crossover point between FHA and Conv Mortgage

ldkcivilservant — Sat, 20 Jul 2019 22:00:29 GMT

Understood thanks!

I just completed the application and it's 'in review' so I'm sure they'll want some documents from me to prove who I am.

I will certainly be taking a look at their mortgage products.

Re: Where is the crossover point between FHA and Conv Mortgage

CreditInspired — Sat, 20 Jul 2019 22:08:20 GMT

@ldkcivilservant wrote:
Understood thanks!

I just completed the application and it's 'in review' so I'm sure they'll want some documents from me to prove who I am.

I will certainly be taking a look at their mortgage products.

You’re on your way to a wonderful banking relationship!

Re: Where is the crossover point between FHA and Conv Mortgage

ldkcivilservant — Sat, 20 Jul 2019 23:10:10 GMT

You happen to know what their requirements are on this mortgage product?

Our icome is about $82k, DTi is abour 4% when all cards are finally paid down (AZEO) and aspreviously stated mortgages scores are in low middle 700s. No baddies on our reports ever.

Re: Where is the crossover point between FHA and Conv Mortgage

CreditInspired — Sat, 20 Jul 2019 23:25:13 GMT

@ldkcivilservant wrote:
You happen to know what their requirements are on this mortgage product?

Our icome is about $82k, DTi is abour 4% when all cards are finally paid down (AZEO) and aspreviously stated mortgages scores are in low middle 700s. No baddies on our reports ever.

Their CS is awesome. Call their mortgage department and have a discussion with them about all their mortgage products to determine which product suits your specific situation and what you’re looking for.

Before I applied for my mortgage, I knew I only wanted an ARM because my plan was to live in my home less than 5 years. After researching all their mortgage products and playing with the mortgage calculator, I knew which loan I wanted to apply for since my scores were 760+ and I wanted no PMI. Once you’re officially a member, those tools will be available to you. But definitely contact the mortgage department.

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Sun, 21 Jul 2019 01:02:33 GMT

@CreditInspired wrote:
@Anonymous wrote:
So it sounds to me that the longer term gain of a slightly lower rate my be offset my a stiff increase in money that we have to fork over in closing. I realise that the lower interest rate should be a priority, but the time crunch that we have (my brother in laws enlistment in USMC ends in February and we are living in his house) means that we don't have all that much time after September when our CC are paid off to actually get things saved up.

Are we able to get pre-approved for an FHA loan before we actually have all of the money in the bank? I would have about $3k in savings (and no debt other than $265 car note) at the end of Ocotber, but if we're looking at neededing at least $10k for the DP and CCosts then it's more likely to be the end of December. Waiting until the end of Dec when we have to be out by 2/1 seems very very tight for closing.
Hello and welcome to MyFICO

I swear NFCU should hire me the way I market their mortgages.

First, have BIL sponsor you at NFCU. If he already is a member perfect. If not, he only needs to become a member which can be done in less than 30 minutes. Once you’re sponsored, you pay $5 into savings and you’re a member. And, I would also open a checking acct with them. Why not, it’s free checking. Now comes the beautiful part if your credit profile is good.

NFCU has $0 down for their 30-yr fixed Homebuyers Choice mortgages with no PMI and conventional ARMs 3/5 or 5/5 with $0 down and no PMI. That’s not a typo.

And also, they offer Realty Plus, a real estate referral program that nets you a nice size bonus directly deposited into your savimgs account after closing.

Yes, ask your BIL to sponsor you today. And feel free to ask me any questions because I went the conventional ARM route in 2018. And I’ve never been happier.

I must be the only person who's not impressed by NFCU's mortgages. I've not seen anything attractive in the 15 year fixed area. A 30 year @4.5% doesn't meet my needs. The rate of building equity and interest paid is worth paying PMI for 2 years (assuming 20% paydown) on a 15 year.

Re: Where is the crossover point between FHA and Conv Mortgage

CreditInspired — Sun, 21 Jul 2019 12:33:48 GMT

i@Anonymous wrote:
@CreditInspired wrote:
@Anonymous wrote:
So it sounds to me that the longer term gain of a slightly lower rate my be offset my a stiff increase in money that we have to fork over in closing. I realise that the lower interest rate should be a priority, but the time crunch that we have (my brother in laws enlistment in USMC ends in February and we are living in his house) means that we don't have all that much time after September when our CC are paid off to actually get things saved up.

Are we able to get pre-approved for an FHA loan before we actually have all of the money in the bank? I would have about $3k in savings (and no debt other than $265 car note) at the end of Ocotber, but if we're looking at neededing at least $10k for the DP and CCosts then it's more likely to be the end of December. Waiting until the end of Dec when we have to be out by 2/1 seems very very tight for closing.
Hello and welcome to MyFICO

I swear NFCU should hire me the way I market their mortgages.

First, have BIL sponsor you at NFCU. If he already is a member perfect. If not, he only needs to become a member which can be done in less than 30 minutes. Once you’re sponsored, you pay $5 into savings and you’re a member. And, I would also open a checking acct with them. Why not, it’s free checking. Now comes the beautiful part if your credit profile is good.

NFCU has $0 down for their 30-yr fixed Homebuyers Choice mortgages with no PMI and conventional ARMs 3/5 or 5/5 with $0 down and no PMI. That’s not a typo.

And also, they offer Realty Plus, a real estate referral program that nets you a nice size bonus directly deposited into your savimgs account after closing.

Yes, ask your BIL to sponsor you today. And feel free to ask me any questions because I went the conventional ARM route in 2018. And I’ve never been happier.

I must be the only person who's not impressed by NFCU's mortgages. I've not seen anything attractive in the 15 year fixed area. A 30 year @4.5% doesn't meet my needs. The rate of building equity and interest paid is worth paying PMI for 2 years (assuming 20% paydown) on a 15 year.

But that’s just it! Most middle class Americans don’t have 20% down ($60K on a $300K loan)! And on top of that have to come up with another appx 4-6% for closing costs if there’s no seller assistance.

And it is also absolutely awesome for those who can afford a 15-yr mortgage with 20% down. So yes, I totally agree that those who have that financial capability shouldnt be impressed with NFCU.

So you see, that’s why I’m impressed with NFCU because I am a middle class American who definitely didnt have 20% down and if I had to wait until I got 20% down, I would never be able to enjoy the American dream of home ownership.

And one can take that money they’re not paying toward monthly PMI and put it toward their principal, if they can afford to do so, which in turn will increase their equity exponentially.

And oh yeah, NFCU’s 30-yr fixed rate is 3.5% with 5% down and no PMI.

Re: Where is the crossover point between FHA and Conv Mortgage

ldkcivilservant — Sun, 21 Jul 2019 16:17:18 GMT

Alliant appears to offer a similar service (Alliant Advantage Mortgage) and the rate posted appears a good 1% lower than NFCU..

Anyone have any experiance with them?

Re: Where is the crossover point between FHA and Conv Mortgage

Anonymous — Sun, 21 Jul 2019 18:26:45 GMT

@CreditInspired wrote:

And oh yeah, NFCU’s 30-yr fixed rate is 3.5% with 5% down and no PMI.

You misunderstood what I wrote. I was speaking of having payed 20% of the principal after 2 years of having the mortgage. The goal is to pay off enough principal over the first two years and take advantage of market appreciation in order to get a reappraisal to get rid of the PMI. Even paying two years of PMI is cheaper in the longer run than being forced into a 30 year term.

I believe most conventional mortgages now are for 5% down. That's most lenders. NFCU isn't doing anything special with that. The thing that's pertinent about the Homebuyer's program is that is requires a 30 year term. This is where they make their money. The whole PMI thing is marketing hype to distract buyers from seeing that regardless of PMI, a shorter term is better for the consumer. Instead, that program overall benefits NFCU. Of course, you coulld refinance later but that's hassle and you have to pay more closing costs.

I ran some quick numbers. Assuming a 250,000 house, and 30 years @3.5 with no down payment, you would pay 154,140 in interest. Total repayment would be 404,140.

Now, a 250,000 house, paying 5% down (-12,500) @ 3.0 (15 year loans usually have lower rates), you would pay 57,724 in interest. Total repayment 295,225.

Would you rather pay interest of 57,724 or 154,140? You could run a side by side comparison of equity earned over time and you'll see the 15 year term allows buyers to gain equity twice as fast.

Bottom line is that while NFCU is one option, there could be better options on the market.

Re: Where is the crossover point between FHA and Conv Mortgage

ldkcivilservant — Mon, 22 Jul 2019 15:57:56 GMT

The more information that I read online (including this forum) about the NFCU Homebuyers Choice is leading me to believe that it works out more expensive in the long run. Second tier interest (below 720) of 6%? That is far far in excess of what I am hoping to achieve.

There appears to be little direct experiance that I can find of anyone actually getting one of their 'best' sub 5% advertised rates. Bearing in mind how much more that costs over the life of the line, I am wondering if a conventional 3% would be better. By the end of November we would have $9k in the bank and a 3% downpayment on a $195k loan is less than $6k leaving $3k for closing costs and still more being saved while we were looking.

Will lenders that do the 3% down pre-approve before the totality of the downpayment/projected closing costs are showing in the bank? I was still hopinh to apply/pre-approval around the end of October when we will have circa $4k in the bank but won't if we can't do that.

Re: Where is the crossover point between FHA and Conv Mortgage

Merc1776 — Wed, 25 Nov 2020 19:44:33 GMT

@Anonymous wrote:
@CreditInspired wrote:

And oh yeah, NFCU’s 30-yr fixed rate is 3.5% with 5% down and no PMI.
You misunderstood what I wrote. I was speaking of having payed 20% of the principal after 2 years of having the mortgage. The goal is to pay off enough principal over the first two years and take advantage of market appreciation in order to get a reappraisal to get rid of the PMI. Even paying two years of PMI is cheaper in the longer run than being forced into a 30 year term.

I believe most conventional mortgages now are for 5% down. That's most lenders. NFCU isn't doing anything special with that. The thing that's pertinent about the Homebuyer's program is that is requires a 30 year term. This is where they make their money. The whole PMI thing is marketing hype to distract buyers from seeing that regardless of PMI, a shorter term is better for the consumer. Instead, that program overall benefits NFCU. Of course, you coulld refinance later but that's hassle and you have to pay more closing costs.

I ran some quick numbers. Assuming a 250,000 house, and 30 years @3.5 with no down payment, you would pay 154,140 in interest. Total repayment would be 404,140.

Now, a 250,000 house, paying 5% down (-12,500) @ 3.0 (15 year loans usually have lower rates), you would pay 57,724 in interest. Total repayment 295,225.

Would you rather pay interest of 57,724 or 154,140? You could run a side by side comparison of equity earned over time and you'll see the 15 year term allows buyers to gain equity twice as fast.

Bottom line is that while NFCU is one option, there could be better options on the market.

Smart points...Question to you is if you did the 30 year and get the principle down with extra "principle only payments" allocated on check can this get passed the aspects you talked about?