FHA Condo Mortgage Question

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wormm99
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Joined: Sun Jun 16, 2013 12:42 pm

FHA Condo Mortgage Question

Post by wormm99 » Sun Jun 16, 2013 12:46 pm

First time poster here. I am in the process of buying a condo in Miami, Florida. The building has been approved for FHA financing if needed. I was going to do a conventional but wanted to consider doing the FHA loan. However, when I asked about the FHA loan to the mortgage broker, he said I would have to pay mortgage insurance for the entire length of the loan even if I put over 20% down. I took his word for it but cannot find anything on the FHA site that backs that up. Anyone know the real deal?

Thanks!

BerkeleyChris
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Joined: Sat Feb 09, 2013 11:23 am

Re: FHA Condo Mortgage Question

Post by BerkeleyChris » Sun Jun 16, 2013 7:07 pm

Hi, welcome to Bogleheads!

I am not an expert in this, but wanted to help try to respond to your post. I think you have a two-part question:

1) would it be better for you to take an FHA or conventional loan?

I believe if you qualify for both, it is generally better to take the conventional.

2) do FHA loans require you to pay mortgage insurance for the life of the FHA loan?

I am not an expert in this, but I believe that the rules have changed and you have to pay insurance for the life of the FHA loan, whereas with a conventional loan the PMI is not required after you have the right % of downpayment/equity...all other things being equal, this would make a conventional loan more advantageous

I would be interested to hear what other Bogleheads think...

Good luck,
Chris

wormm99
Posts: 25
Joined: Sun Jun 16, 2013 12:42 pm

Re: FHA Condo Mortgage Question

Post by wormm99 » Sun Jun 16, 2013 7:21 pm

I guess my quandary is if it makes better financial sense to do an FHA or conventional loan.

FHA
1. lower interest rate
2. don't have to put 25% down = more money in savings
3. monthly mortgage payment higher because paying mortgage insurance and from putting less money down

Conventional loan
1. higher interest rate (by about a percent)
2. No mortgage insurance
3. less money in savings (about 4 months worth of pay in reserve)

If the FHA loan meant higher mortgage payments each month, would it be worth it knowing I'll have plenty of money in savings in case of emergency. Also, I'll be able to furnish my place with new furniture.

Novine
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Re: FHA Condo Mortgage Question

Post by Novine » Sun Jun 16, 2013 8:29 pm

This real estate site has a rundown on the details. It would depend on your circumstances. I think most people will tell you that if you are stressing about your savings, you may be overextending yourself to get your condo. Consider whether that's the case for you.

K-SawDude
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Re: FHA Condo Mortgage Question

Post by K-SawDude » Sun Jun 16, 2013 8:55 pm

It used to be the case that FHA would cancel the monthly insurance payment (MIP) after 5 years for 30 year loans, or at any time for 15 year loans, once you hit 78% loan-to-value (LTV). But it sounds like they've made FHA ridiculously undesirable now:

http://themortgagereports.com/12740/new ... une-3-2013
Beginning in June, though, the FHA moves away from an LTV-based system. The new cancellation policy will be as follows :

Loans beginning at 90% LTV or less will pay annual MIP for 11 years.
Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term.

This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.

With the new FHA rules, MIP is forever.

So, yeah, go conventional if at all possible. MIP is a waste of money if it can be avoided. (You're paying to insure the bank's potential losses, not your own.)

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grabiner
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Re: FHA Condo Mortgage Question

Post by grabiner » Sun Jun 16, 2013 9:28 pm

K-SawDude wrote:It used to be the case that FHA would cancel the monthly insurance payment (MIP) after 5 years for 30 year loans, or at any time for 15 year loans, once you hit 78% loan-to-value (LTV). But it sounds like they've made FHA ridiculously undesirable now:

http://themortgagereports.com/12740/new ... une-3-2013
Beginning in June, though, the FHA moves away from an LTV-based system. The new cancellation policy will be as follows :

Loans beginning at 90% LTV or less will pay annual MIP for 11 years.
Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term.

This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.

With the new FHA rules, MIP is forever.

So, yeah, go conventional if at all possible. MIP is a waste of money if it can be avoided. (You're paying to insure the bank's potential losses, not your own.)
And you can't necessarily get rid of the premium by refinancing once you reach 80% LTV. You might be unable to refinance because you no longer qualify (for example, because your income has declined and your current income no longer justifies the payments, or because you have bad credit). And even if you do qualify for a refinance, if interest rates have increased, the refinance may not help you because the higher interest rate costs more than the insurance.
Wiki David Grabiner

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Steelersfan
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Re: FHA Condo Mortgage Question

Post by Steelersfan » Sun Jun 16, 2013 9:30 pm

In my area a high percentage of condos have not gone to the expense of getting FHA approval since conventional loans are readily available.

That indicates to me that conventional loans are probably the better choice if you can qualify for one in your market.

sciencewhiz
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Joined: Thu Aug 21, 2008 7:30 pm

Re: FHA Condo Mortgage Question

Post by sciencewhiz » Mon Jun 17, 2013 5:33 pm

If you have a good credit score, you may be able to qualify for a conventional mortgage with 5% down and PMI. The PMI will be lower then FHA. Don't forget that with FHA, besides the recurring MIP, you have a upfront MIP as well, which gets rolled into the loan balance. You may also be able to do an 80/10/10 and not have any PMI.

Cash
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Re: FHA Condo Mortgage Question

Post by Cash » Mon Jun 17, 2013 8:44 pm

K-SawDude wrote:It used to be the case that FHA would cancel the monthly insurance payment (MIP) after 5 years for 30 year loans, or at any time for 15 year loans, once you hit 78% loan-to-value (LTV). But it sounds like they've made FHA ridiculously undesirable now:

http://themortgagereports.com/12740/new ... une-3-2013
Beginning in June, though, the FHA moves away from an LTV-based system. The new cancellation policy will be as follows :

Loans beginning at 90% LTV or less will pay annual MIP for 11 years.
Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term.

This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.

With the new FHA rules, MIP is forever.

So, yeah, go conventional if at all possible. MIP is a waste of money if it can be avoided. (You're paying to insure the bank's potential losses, not your own.)
+1. FHA loans used to be a pretty good deal if you didn't want to put a lot down. They became the go-to mortgages for many new home buyers during the financial crisis (including myself). But the changes over the past few years have made them very undesirable. Now that lenders are lending again, you're generally better off with a conventional loan.

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