Need Help ASAP! (FHA vs. HBC)

[Anonymous]

Hello, all!

I've been doing research for weeks about this topic, so I figured it'd be best to come to the experts. DH and I are first-time homebuyers and looking to apply for a mortgage within the next month or so. Here are our stats:

Income: $40k

Debt: $500/mo. ($200 CC payments, $300 child support)

My middle mortgage score: 679 

His middle mortgage score: Unsure, but likely between 660-680 (will check this weekend if it will give a definite answer to my question below...)

Money saved for downpayment/closing right now: $5k

We are debating between NFCU's 30-year, 100% financing Homebuyer's Choice loan and the FHA loan.

Here's the dilemma. I have some extra money set aside right now, and I'm not sure whether to pay down our credit cards, and thus bring our $200 monthly debt lower in order to boost our scores a little bit for the HBC (in hopes of getting a higher tier and lower interest), or whether it is best to set it aside and use it towards our downpayment and go for FHA instead since they're a little more lenient on DTI. 

Without knowing what NFCU's tiers are for interest for HBC, can anyone help talk me through this? We are looking to apply within a month or so, so I'd need to put money on these CCs ASAP so that they report in time. However, if it'd be better to go the FHA route, I won't worry about it right now. 

Please help. I'm losing sleep over this. I don't want to make a mistake and do the "wrong thing" and regret it.

Thank you in advance!

[AZEsq]

You should contact a broker and have them run your scores and run their calculator. At the end of the day, they want the loan to close so if you don’t trust them, get a new one!

[Anonymous]

I recently applied with NavyFed online for what I thought was the standard conventional loan. They instead sent me documents for HBC so I asked them to compare that with FHA out of curiosity. Here’s what I got: (Jan 29)

HBC 6%
FHA 4%
Middle score: 715 (i guess I’m considered tier 2)

I was not interested in doing 100% financing but even if i was The choice would have been obvious for me to go fha. A 2% diff in interest rate is just not justifiable for me.

Hope that helps

[VALoanMaster]

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@Anonymous wrote:
I recently applied with NavyFed online for what I thought was the standard conventional loan. They instead sent me documents for HBC so I asked them to compare that with FHA out of curiosity. Here’s what I got: (Jan 29)

HBC 6%
FHA 4%
Middle score: 715 (i guess I’m considered tier 2)

I was not interested in doing 100% financing but even if i was The choice would have been obvious for me to go fha. A 2% diff in interest rate is just not justifiable for me.

Hope that helps

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Hi Goldenlady,

You should compare the HBC to an FHA loan & to a "normal" conventional loan. Look at closing costs, down payment & total monthly payment & then decide which option best fits your needs.

The downside with FHA & the HBC loan is your mortgage insurance is for the life of the loan.

There are a couple of caveats with FHA, if you put 10% or more down on an FHA loan the mortgage insurance will drop off after 11 years. The same thing applies if you do a 15 year term on FHA.

The only way to get rid of the mortgage insurance on the HBC loan is to refinance out of it because the MI is built into the rate. That means you'll effectively pay MI for the life of the loan.

On a traditional conventional loan you'll have a couple of options. You can the PMI upfront, you can pay it monthly, you can have the lender pay it (higher interest rate) or you can do a split premium where you pay part of it upfront & the rest is paid monthly.

The best part about paying the PMI monthly is you can have it removed for the cost of an appraisal as long as you have enough equity.

This saves you thousands of dollars in closing costs & protects your current interest rate.

A couple of additional things to consider.

How long do you plan on staying in your home and the tax implications.