Please help me decide between 2 mortgage loans.?

ski03 · Joined: 24 May 2008 Posts: 1 1.53 Dollars($)

Both Rates are locked and I need to decide for sure in a few days.

I can either get an FHA loan with at 5.5% interest with a 5.79% APR including insurance and only 10% down or a 5.5% interest loan at 5.6% APR with 20% down.

They are both 15 year mortgages. I am wondering if the FHA loan would be better even though the interest rate is higher since I could probably make an average of 8-10% on the stock market and if rates drop I can refinance and get a refund for the mortgage insurance.

The purchase price is $400,000. I am 24 and have $250,000 to my name. The nature of my business is not very secure however I expect to make appx $200,000 per year for the next few years but it could potentially drop off.

My credit is meh which is why I am not getting a 30 year loan. I expect my credit to be well over 700 within 6-24 months. I am considering refinancing in 2 years but I don't know how much of a gamble it is on interest rates.

Thanks,
Nick

John1 · Posted: Sat May 24, 2008 10:51 am Post subject:

Ifyou can put 20% down, I would go with that and avoid PMI, but you can get a better rate than 5.5% on a 15 yr fixed!!! GO put too much weight on the APR, since either lender may not have it calculated correctly. just manually add up the fees and see if there is a large difference, if not, go with who you feel more comfortable.

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi,

Can you able to pay 20 percent down payment upfront? If so then you can go for it to avoid the PMI. But I think FHA is good option for you as you will only have to pay only 10 percent down payment upfront.

Best of luck,
Larry

jeffselan · Posted: Mon May 26, 2008 4:00 am Post subject: Hmmm.

You should be able to get an FHA loan with a 3 % commitment. 10% should not be needed. You have to figure out what is best for you when speaking of where your money will be best used.

My deeper concern is your uncertianess of income. Have you been self employed two years? Can you proove your income?

The rates you are looking at are reasonable although if you look around, you may find better.

0.10 Dollars($)

Few thoughts:
1. Don’t put 10% down on FHA. Put 10.1% -- that way you lose the annual MIP. I think the LO is intending for you to put the extra tenth of a percent since that the only way for the APR to make sense.
2. Don’t count of getting a “refund” of your FHA UFMIP. You can receive a “credit” on refinance if you go FHA again in a limited period of time. In other word pay to get. Unlikely a FHA-to-FHA would make sense a couple years from now.
3. I’ve always viewed FHA 15-year term loans as orphans. Doesn’t really fit the profile of your typical FHA borrower but “typical” has changed a lot lately. Usually there’s not enough volume to pool yourself. There are probably “majors” out there but I sell on a flow basis so perhaps someone else can give you an idea on this.
4. There’s just not enough spread in 15 and 30-year rates right now to curl my toes on the 15-year. This curling statement applies to FHA only. You might consider looking at the 15/30 situation as an option price for being able to elect, month by monthly, the lower 30-year payment. Get a little more complicated since the 30-year choice brings back monthly MI. – not an insignificant amount -- and the 5-year barrier comes into pay if you make the 15-year payment. On the conventional side the spread is likely to be much wider given your vague comment about “credit” – the 15-year term avoids many of Fannie’s recent “hits”.

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Guest.

Very good suggestions. I thought FHA is a better option for him but he can get the other loan with lower APR. So do you think that he should go with lower APR?

Best of luck,
Larry

evolovik26 · Posted: Wed May 28, 2008 6:36 am Post subject:

If you put 10.1 % down on FHA loan there is no PMI but there is still 1.5% upfront PMI.
If you thinking of refinancing in 2 years and can afford 20% down go with conventional loan as you will lose that 1.5%.
Generally speaking an FHA loan is usually better for someone less qualified then you.
Either loan should work fine for you.

cliff · Posted: Wed May 28, 2008 1:06 pm Post subject:

All very sound advice.

What city are you in? This would help with understanding what real estate markets are like in your city? The reason being you cannot assume that your house is going to appreciate. I would not bet on interest rates following because thier are inflation concerns at the fed. Whenever the fed combats inflation the measures they take always cause mortgage interest rates to rise.

In short we are in an environment where interest rates could very well rise in the next couple of years.

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