Q&A: FHA or Conventional loan with 5% down?

Posted on Oct 6, 2012 in FHA Information

Question by nballs: Is there a way to get home loan with almost no income verification?
I have been tax sherltered with self employment and depriciation. So I don’t show much income(below poverty level) I am starting a new position which is salaried as an employee. Do I have to wait 2 years or could I use the income from the multi unit building to get financing? I have big dreams and just need a helping hand with getting them started. Thanks in advance for anyone who contributes.

Best answer:

Answer by Andrea T
It doesn’t seem likely given the current mortgage situation. You’re going to have to do a lot of research. Start locally then expand outward.

Good luck.

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Question by Sana: FHA or Conventional loan with 5% down?
I was offer by my mortgage agent with 2 option, symptoms either FHA or Conventional loan with 5% down payment. I have got the Good Faith Estimate for both.

For FHA: Mortgage rate is 4.500%, ailment but have higher closing cost and insurance. Monthly payment will be about $ 1520.

For Conventional loan: Mortgage rate is 4.750%, have lower closing cost since there’s no upfront mortgage insurance and lower insurance rate. Monthly payment is $ 1470.

Closing cost for FHA is $ 14000, and $ 12000 for Conventional loan. Closing cost is high since I live in NYC.

I’m so confused since we are first time home buyer. Conventional loan has a bit higher rate but still less on monthly payment. On the other hand FHA has a little bit lower rate, but has higher monthly payment due to higher mortgage insurance. I was told by my agent that the FHA require you to pay the mortgage insurance for at least 5 years. After 5 years, If mortgage amount is at 78% or lower of the original value of the property after 5 years from purchase, mortgage insurance comes off. On conventional loan you need to prove, by ordering and paying for appraisal, that your loan is at 78% or lower of the value of the property at the time of request.

From what I see conventional loan is better, but people keep telling FHA is better because it’s a government loan. What do you think?

Best answer:

Answer by LadyJane
I work in mortgage and appraisal. I would do anything to avoid FHA. Their requirements for documentation are higher, and you’ll take longer to close.

Most conventional lenders will cancel your mortgage insurance (at your request) once you pay the original loan balance below 78%. If you want to get rid of it earlier – in other words, you think your house has increased in value- then yes you can order and pay for an appraisal to do it that way.

If you feel a realtor or broker is pushing you hard towards the FHA, it’s probably because they get referral fees and extra payments on the side for recommending them.

I would be extremely wary of anyone a realtor refers you to. I almost got scammed out of $ 2,000 the first time I bought a house because I used the ‘realtor recommended’ title company. When I shopped around myself I found I could save $ 2,000 in closing fees. I also found out he got $ 250 on the side if I closed with them. YOU have the right to shop around and choose whatever you think is best for you!

… overall though, if you only have 5% to put down, buying a house is risky. I purchased a home in 2009 with 20% down. Within 6 months my sewer drain collapsed (which BTW insurance does not cover) and it cost me $ 6,000. It had to be fixed that day or I couldn’t shower, go to the bathroom, or use the water. Then we had an issue with water leaking into the basement and that cost another $ 8,000 to get a french drain installed and outside basement walls waterproofed. Make sure you are aware of the major things that can go wrong and have money set aside for it. Like I said, I work in mortgage… I see too many folks land in foreclosure just because they underestimated the cost to own a home and walked away from the needed repairs.

Good luck!

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