Is This FHA Mortgage Loan a Good Deal?
My wife and I are first time home buyers, and we want to tap into this buyer's market. We spoke with a Wachovia representative a couple days ago, and we are considering the following FHA loan:
For a $200,000 house-
1. 15% down payment, FHA Loan, 30 year fixed mortgage
2. 5.10% mortgage interest rate (per month)
To avoid a horror story with this home purchase, what kind of questions should we ask, and what kinds of things should we look out for?
- loanmasteroneLv 71 decade agoFavorite Answer
FHA mortgage loans are very good. The one draw back I have against a FHA mortgage loan is there is MIP sorta like PMI, that last the life of the loan no matter the balance of your mortgage loan.
Your MIP might be tax deductable depending on which tax bracket you are in.
For all tax and legal matters you should consult with your tax consultant and attorney.
Once you reach 80% of the value of your property I would consider refinancing to a conventional mortgage loan thus taking away the MIP and since the refinance would be for less than 80% of the value of the property your new mortgage would not have PMI.
Of course you would have to sit down and do the numbers to see if they match the cost versus any possible savings you might make from the refinance.
I would be reluctant to put down 15% with the housing market the way it is today. Once you purchase your property if could lose value thus your down payment would have been for naught and gone until the property appreciate in value. Presently, still in certain parts of the country properties are still losing in value.
Now your house is less than what you purchased it for and you have lost your down payment with the lost.
Therefore I would put down the minimum and leave my cash liquid in whatever instruments you presently have them.
You should ask and inquire about all the possible mortgage loans you are approved for.
You should ask as many questions as you can.Asking questions might conjure up more that you had not thought of. Don't leave your mortgage broker/bankers office until you are pleased with what they are telling you and you have all the answers to the questions you asked.
There are many things you should do, but the first thing you should do is contact a mortgage broker that does FHA mortgage loans and get pre-approved. This is the first step. Once you have your pre-approval then contact a real estate agent to look at house based on what you are qualified to buy.
You will need proof of income so have available pay stubs, w-2, bank statements and other items your mortgage broker will require.
He will inform you of what is necessary once you contact him.
This pre-approval will tell you the amount of house you are qualified to purchase as well as the interest rate, monthly mortgage payments and other necessary things you need to know about your mortgage.
Your pre-approval should indicate the interest rate, monthly mortgage payment and how long you have to pay the mortgage off (Terms). You should get a Good Faith Estimate (GFE) and a Truth in Lending (TIL) once you have beem pre-approved. As soon as you get these two documents call your loan consultant and ask questions about the numbers, what they mean, closing cost you are required to pay.
Make sure once you have seen a property that you inquire of a roof cert(even if the lender does not require one), an inspection report, an appraisal. A sales contract the give you the right to back out based on your inspection report.
To avoid a horror story don't sign anything unless you know exactly what it is that you are signing. Once you have signed your loan docs it is too late 2-3 years later to find out that what you thought you were getting you are not getting.
So if the interest rate, mortgage payment and terms on the mortgage docs you are about to sign do not match what you were told prior to you getting and signing your mortgage docs STOP and get an explanation from your mortgage consultant.
I hope this has been of some benefit to you, good luck.
- 1 decade ago
Ask about PMI..this is a kind of insurance you pay for included in your loan payment that you never get back. Usually with 20% down you do not have to have PMI Insurance.
Also, you may want to consider Title Insurance, this cover the title for the time you own the property, protects you. One time charge.
Early prepayment charges. If you want to pay off the mortgage before the 30 years. Or make prepayments to the principal only.
Also how many points are you paying on this mortgage. There are usually origination loan points, buyers points and such. Each point is negotiable. The more points you pay the lower the interest, the less points the higher the interest.
Will you ever be able to refinance, say you can get an interest rate of 4% a few years from now...will you be able to pay off this loan or is there a charge.,..same as a prepayment.
The most important thing is to have a lawyer look at the papers and court documents...its worth it. Do not trust the realator or broker or banker.
- 1 decade ago
I am hoping that you lender has given you a Good Faith Estimate (GFE). This will detail ALL the costs of buying a home. Many times people are shocked at the closing costs that must also be paid. In today's buyers market many buyers are requesting "seller assist" to help cover a portion of the closing costs.
Interest rates will change daily so keep an eye on this. 5.1% interest is very near historical lows. With FHA loans you will be required to pay an upfront mortgage insurance premium and also pay a monthly premium that is added to your mortgage payment. Below are a few "What-ifs" through my mortgage/closing costs spreadsheet.
I am located in Pennsylvania so I will give you what this would cost here.
Home at $200,000, $4800 annual taxes, $600 annual insurance FHA loan with $30,000 down and 5.1% interest.
Principal & Interest $939.17
Haz Ins $50.00
Mort. Ins.Prem $77.92
Total payment $1,467.09
Closing costs and Prepaids = $14,245.30
If you went with a Conventional loan my calculations are
P & I $923.01
Haz Ins $50.00
Total payment $1,418.34
Closing Costs and Prepaids = $11,264.00
If I were you I would check out conventional loans also. Also, if you could come up with 20% down you would avoid the monthly MIP/PMI above.
- glennLv 71 decade ago
This might be the best that you can do right now. Interest rates vary depending on the type of loan you make and the credit rating you have the the type of market you are buying into- so I can't tell you if the rate is good.
FHA is usually for people that need to make a much smaller down payment than you are making. If you can make a 20% down payment you may be able to avoid a lot of upfront fees by getting a conventional loan with no MIP or PMI and lower fees.
And I would guess that the 5.10% interest rate is not per month but per year and has monthly payments.
- How do you think about the answers? You can sign in to vote the answer.
- Anonymous1 decade ago
FHA is a vey good way to go. There home inspection process is better then most. Their rates are better also.
- 1 decade ago
the rate is a little high. see if you can buy it down or renegotiate the rate