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FHA vs 100% financing

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FHA vs 100% financing

OK so here we go again.  I have bad luck with LOs so im about to give up in this process at all.  It makes no sense that i have to come ask questions here when there are professionals getting paid for this and wont to their job.

 

So we have been pre approved by two different lenders, one we applied for FHA (bc of the lower interest rate), the second was NFCU for the 30 yr homebuyers choice 100% financing.  I was thinking FHA was the way to go but bc we are putting down less than 10% it seems like I would have to pay PMI for the life of the loan and the 100% financing does not require that.  NFCU  does offer us  $1,200 towards closing costs also.  

 

100% financing - 5.2%

FHA - 4.25%

Equifax: 676 (myfico) Experian: 683(myfico) TransUnion: 689 (Barclays)

Current Goal: 700
Message 1 of 9
8 REPLIES 8
Moderator Emerita

Re: FHA vs 100% financing


@Jess21 wrote:

OK so here we go again.  I have bad luck with LOs so im about to give up in this process at all.  It makes no sense that i have to come ask questions here when there are professionals getting paid for this and wont to their job.

 

So we have been pre approved by two different lenders, one we applied for FHA (bc of the lower interest rate), the second was NFCU for the 30 yr homebuyers choice 100% financing.  I was thinking FHA was the way to go but bc we are putting down less than 10% it seems like I would have to pay PMI for the life of the loan and the 100% financing does not require that.  NFCU  does offer us  $1,200 towards closing costs also.  

 

100% financing - 5.2%

FHA - 4.25%


As you can see, the rate for 100% financing is higher so in a way you are paying for the lender to self insure via the higher interest rate.

Have you calculated your FHA payment (principal and interest, not escrows) plus the monthly MI you would pay? Then compare it to the 100% financing payment.

The mortgage insurance if you put down 3.5% is 1.35% of your loan amount. 

 

One advantage to the 100% financing, even at the higher rate, all of the interest is deductable.

Message 2 of 9
Frequent Contributor

Re: FHA vs 100% financing

what does the interest rate being deductable mean?  (sorry i still dont know so much about this)... BTW the reason why im now thinking it is betterto go with the 100% is because they are also giving me closing money.  I know that in the future we would refinance to a lower interest rate once we are in a better place economically.  Right now mostly want to mke sure our payments are affordable

Equifax: 676 (myfico) Experian: 683(myfico) TransUnion: 689 (Barclays)

Current Goal: 700
Message 3 of 9
Moderator Emerita

Re: FHA vs 100% financing

Here is a link to explain the mortgage interest deduction on your itemized Federal tax return. Your tax preparer will be familiar with it. In the year of purchase, the points that may be charged to you by the bank are also deductable.  http://www.irs.gov/publications/p936/ar02.html

 

All the interest you pay each year on your mortgage is a deducable item. It may or may not reduce your tax liability beyond the standard deduction, it depends upon your individual factors. The best person to speak to about this is a tax professional that can give you specifics.

Message 4 of 9
Frequent Contributor

Re: FHA vs 100% financing

thank you, that makes sense!  I honestly dont know much about this process I feel so lost

Equifax: 676 (myfico) Experian: 683(myfico) TransUnion: 689 (Barclays)

Current Goal: 700
Message 5 of 9
Moderator Emeritus

Re: FHA vs 100% financing


@Jess21 wrote:

thank you, that makes sense!  I honestly dont know much about this process I feel so lost


No worries. I've owned houses since 1977 and I still feel lost most of the time.  Smiley Sad

Message 6 of 9
Regular Contributor

Re: FHA vs 100% financing

Jess21, are those your current fico scores in your siggie??  We are also investigating low down payment options for when we start the home buying process next year.    We would much rather be able to use the amount we are saving towards the down payment and closing as an emergency savings fund and to make improvements on the house than on a down payment.The 100% financing plan seems like it would be the good way to go for us even with the higher interest rates as we would be able to utilize all of the mortgage interest deductions.  I am in the process of pulling my middle credit score up from 635 (Somehow my high score is 711!).  It would be a huge relief to know we would have low down payment options with a middle score of 680 or so instead of 700 or 720. 

 

Also, we have been doing a lot of other research into other ways of minimizing the amount of cash that needs to be brought to closing and I'm wondering if you've considered them.  I have been reading that Fannie and Freddie have announced last month that they will soon be allowing 3% down conventional loans again.  They are making a huge push to make more loans available to credit worthy borrowers with little assets.  I don't know how quickly you are looking to buy, but that might be something to inquire about as well with other lenders.  Also, I understand that the newly elected Republican Congress is looking to pass some popular legislation to help their chances in 2016, and one of the bills they are considering is legislation that makes home ownership easier because they feel they can get bipartisan support. 

 

Even if none of that pans out, apparently  there are also some lenders who will let you pay the mortgage insurance upfront and tack that onto the cost of the mortgage at closing along with the closing costs.  Or you could negotiate with the seller to pay the upfront MIP and or closing costs in exchange for a higher selling price.  After picking up slightly, the housing market seems to be going back to a buyers' market so maybe this is a possibility.  With the lower interest rates you'd pay, it might be worth it to see if you'd get a better bargain going this route.

 

I am a newbie to all of this too so if any of this is not entire feasible I really would love the feedback from more experienced posters.  I realize "real life" might not be the same as what I'm reading through my Google searches. 

Message 7 of 9
Frequent Contributor

Re: FHA vs 100% financing

We are looking to buy before Feb. 2015.  We dont have a lot of cash at all, but we currently live in a mobile home than we own and are selling so we can buy our "forever" home.  I am just afraid of selling without having a place first.  I dont want to have to go rent an apartment and get a 12 mos contract.  There are a lot of programs like what you are mentioning out ther ebut honestly it is not a great as it sounds.  Qualifying for a mortgage goes way beyond your credit score, you can qualify for FHA with scores in the low 600 or even lower.

Equifax: 676 (myfico) Experian: 683(myfico) TransUnion: 689 (Barclays)

Current Goal: 700
Message 8 of 9
Regular Contributor

Re: FHA vs 100% financing

Thanks for the reply and good luck on closing on your new home!  I really get inspired reading stories of people here who close on houses and I'm sure I'll be reading about yours very soon.

Message 9 of 9
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