Conventional or FHA?

[Anonymous]

Hey there, I've got a few questions on whether a conventional or FHA loan would better suit me. I apologize if some of this may be basic knowledge/info, as I am totally new to this side of things.

My wife and I are planning to apply for a mortgage soon(ish). We are first time home buyers, but if I am understanding the articles that I find online, a conventional loan would better suit us.

A few bits of information that I'd read online (I know, don't trust everything online, which is why I'm asking on here... online. Makes sense, right?)

FHA:

Available to those with lower credit scores (500-550ish)

3.5% down payment required

Down payment can be 100% paid via gifted funds

PMI does not automatically drop from loan, need to refinance to remove PMI

Higher PMI rate than conventional

Conventional:

Slightly higher credit score requirements to be considered (usually 640ish)

3% down payment required

Down payment can be 100% paid via gifted funds

PMI drops automatically at 78% LTV

Lower PMI rate than FHA

If some of the above information is incorrect, please correct me, as I am trying to make the most informed decision possible.

My wife and I are looking to get into a house, in order to start "investing" with our housing payments, as opposed to paying similar figures in rent to an apartment.

I understand the mortgage scores have a slight variation from the traditional 08 scores that are commonly used today. I will list our scores that I had obtained for free via Discover statements and Discover CreditScorecard yesterday. We do not have any derogatory information on CBRs.

My scores

TU 08 - 759

Exp 08 - 761

Wife's scores

TU 08 - 784

Exp 08 - 778

Combined annual income based on 2018 W2 is 42,000 (comes out to 3500/mo). Wife is a server at a restaurant, I am a full time banker/loan officer. Have both been at our jobs for longer than 2 years.

Combined current monthly debt payments would be 515/mo

Based on my understanding (if my information listed above regarding the two loan types is accurate), I'd say that we would be better off with a conventional loan, as I'd assume FHA is more geared toward individuals with limited/lower credit scores. Our primary "hurdle" is a down payment. We have funds for closing costs, but minimal additional funds for down payment. My mother is willing to gift the down payment funds, so that is covered if we are unable to get a 0% down payment option.

Any and all advice is appreciated.

I am a member of a local CU that is offering a 3.99% 30yr 15/15 ARM with 0% down, and they would classify it as a conventional loan with regards to the PMI rate. I was unsure if anybody is aware of any better options as well, assuming my above inferences about a conventional being better for us in our scenario were correct.

Again, please correct where necessary.

We are not military affiliated, so VA and NavyFed options are not accessible.

[NC_Mtg_Loaner]

What's the APR on that 3.99% 15/15 ARM?

While it looks attractive upfront, without knowing the costs to obtain that rate just oughto make one suspicious.

With credit scores above 680, it's likely you'll have better terms on a conventional loan, but don't underestimate HUD's subsidy of your FHA loan, so be sure to have your loan officer provide you with comparative quotes when you are pre-approved and begin shopping for a home. 

[Anonymous]

FWIW, the 15/15 ARM has an interest rate cap of 6% per adjustment, and a 2.99% floor. Wouldn't plan on keeping it past 10-12 years, so the only determining factor at this time would be whether we decided to keep it as a long term rental, or sell it upon moving out in 10-12 years. If keeping long term, this would not even be an option due to 30yr fixed being 4.375 with the same institution at this time.

I'm unsure what the APR is yet, as I have not applied.

They did provide me with the PMI and payment amount though.

Payment would be 1006.76/mo and PMI would be 97.50/mo within that payment. Loan amount of 130,000 was used to provide that info.

How would I use that information to calculate the APR?

[CreditInspired]

Welcome OP

The APR is the cost to you to get the 3.99% rate. What are the broker fees, points, origination fee, and any other other fees the lender will charge you?

[Anonymous]

I will check into this on Monday 2-4-19 and report back to this thread with the information that I find out about the fees. Just wanted to submit a response quickly so that it does not seem as though I'd abandoned the post.