FHA or Coventional?

posted 3 years ago in Home
Post # 3
Member
3280 posts
Sugar bee
  • Wedding: June 2014

There were a lot of stipulations when we were applying for loans this past summer. FHA cost substantially more (almost double) than a conventional loan with the same # of years and had a higher interest rate. We ended up not qualifying anyway since we are both full time students but have excellent credit and would have went the conventional way anyway. I am sure it totally depends on each case, amount of loan, current interest rate. If you can afford the FHA loan and are able to refinance soon (although rates have gone up a ton since even this summer and are on the rise) then you might as well if you want a house. If you have anyone willing to cosign that would be a great option as well. 

Post # 5
Member
25 posts
Newbee

With the closing costs, it is not recommended to refinance under 5 years.  To refinance you still pay loan origination fees, document fees etc.  Many times, it’s states no fees but I’ve found they  just roll them over into the new loan.  As a seller, FHA is not desirable because it takes longer, (waiting for  the FHA inspection) and a FHA inspection can be complicated and some sellers cannot afford to comply. and could refuse your offer for another with a conventional loan.  Suggest search on line about FHA loans for info.   And the PMI (mortgage insurance) adds $$$’s to your payment nod really doesn’t build equity in your home. So waiting a year,building credit and saving for down  payment, you would ahead in the long run.  This is just my experiences as both a seller and buyer.  

Post # 6
Member
10384 posts
Sugar Beekeeper
  • Wedding: September 2010

Just remember you have to repay closing costs, and for an appraisal, etc to refinance. Factor that into your pro/con list when discussing which option is cheaper – FHA now or waiting a year for a conventional. Make sure you take into account rising interest rates, too – they will certainly be a bit higher in a year!

Post # 8
Member
1007 posts
Bumble bee
  • Wedding: November 1999

Even if the rates go up on the conventional loan, it will still probably be cheaper than paying for the PMI for however long before you refinance. **But you should crunch the numbers to see what will be cheaper in the long run.** Only you know what is best for you, but if I could only get a FHA loan right now then I would wait. Good luck!

 

Post # 9
Member
2368 posts
Buzzing bee
  • Wedding: June 2014

 It really depends on your situation (I know that’s not the answer you want, but it’s true). We have the option either way, and while the mortgage insurance is much higher on FHA, they also have renovation  financing that can be built into the loan, which is not commonly available on a conventional mortgage. As we’ve been looking at houses that need some work, that actually makes the most sense us. We won’t  live in a home with no usable kitchen just to wait long  enough for the equity to be  enough for a HELOC. Also, for most conventional mortgages, you still need to pay mortgage  insurance. The difference is that the insurance drops off after you’ve paid 20%, where a FHA mortgage  insurance does not. Best thing I can tell you is to talk to a  professional, lay your cards on the table and see what suits your individual needs best. 

Post # 10
Member
3570 posts
Sugar bee
  • Wedding: September 2011

I would not do an FHA loan.  If this lender says you don’t qualify for conventional, you can always try another lender, or a broker.  You might be surprised how bad your credit can be to get a conventional loan.

Post # 11
Member
11731 posts
Sugar Beekeeper
  • Wedding: November 1999

I would not do an FHA loan, and when we were shopping for mortgages, our broker actually told us she does not recommend them, except in dire circumstances.  They usually can work with you to find ways to get you to qualify for a conventional.  Check with a few more lenders.

From what I’ve been told, you are stuck with the PMI for the life of the loan under FHA – I’m not sure how refinancing changes that.  But I wouldn’t want to be paying a couple hunderd dollars a month to ensure I don’t default when I own 80% of my house! 

Post # 12
Member
135 posts
Blushing bee
  • Wedding: May 2015

FHA is a great option, but they have changed it so that PMI does not go away anymore.  Right now, there are several financial institutions in our area that are offering $0 closing costs to refinance, but as refinances are tapering off, I’m not sure how far into the future that will be offered.  I agree with the above advice about waiting until you can go conventional or not refinancing before five years (unless you can find the $0 closing costs specials, which usually require max 80% LTV and be careful because some financial institutions have fine print that isn’t beneficial to you (i.e. not paying for all of the fees, appraisal, requiring checking accounts, prepayment penalties, etc.).

Post # 13
Member
135 posts
Blushing bee
  • Wedding: May 2015

@abbie017:  Refinancing changes whether you have PMI because you are refinancing out of the FHA loan.  It is paid off by the financial institution you refinance through as they take on your mortgage.  However, refinancing later may not be beneficial as mortage rates will likely continue to rise (although they have dipped a bit during the government shutdown), so you may be stuck with a higher interest rate in the future if you choose to refi.

Post # 15
Member
11731 posts
Sugar Beekeeper
  • Wedding: November 1999

@Sawyer13:  Interesting.  I had no interest in pursuing an FHA loan so I never looked into it!

Post # 16
Member
8425 posts
Bumble Beekeeper
  • Wedding: April 2013

Like other bees said, do the math.  My husband and I purchased our house last year and it would have been substantially more for us to go with FHA over conventional.  I think my BIL has an FHA, but he only put 3% down (purchased in 2010).

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