Watch* Basically, FHA got slaughtered on loans from 2004-2008. If you are a FHA borrower prospectively, please don't do it, you will be slaughtered.
* 1.75% upfront fee. What a f___king waste
* 1.3% annual morgage insurance, even more of a f___king waste.
* New rule make you carry insurance permanantly even if LTV is below 78%. In a rising interest rate environment, you may be stuck permanently with this. In a 250,000 loan, basically 3,250 a year and decline maybe $200 a year. This is nuts.
This is bad credit/stupid people tax.
http://money.cnn.com/2013/01/31/real_estate/fha-mortgage-premiums/index.html?iid=HP_Highlight
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I agree.
Even before the new rule it was a 12.5% loan on the remaining 17.5%
With the new rule it's a fools game.
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save 20% down... avoid PMI, get the best rates...
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robertoaribas says
I agree that the FHA fees are crazy, but PMI isn't so bad. I considered several options, and i ended up putting only 10% down -- some mornings I wish I had just put 5% down. The extra cash on hand keeps me more flexible -- and if I want to I can just pay the difference and eliminate the PMI at any time. So if I need the cash (for renovations, for example) I have it, but if not I can just apply that money towards the loan balance.
I was still able to get a good rate, and even with the PMI (I think I'm paying about 0.62% for the PM) I'm still well under 4% -- cheap money.
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swebb says
Agreed, if the home is a good deal, that is not a deal breaker.
However, going forward, if I were you, I'd try to pay down that 10% as soon as possible. get a good credit card for emergencies, so you can run leaner on reserves...
here is why: (and I'll just make up numbers here for example purposes)
say the home was $100k, and you put $10K down... and your loan is 3.5%...
IF you pay off the other 10% ($10,000) and get rid of PMI, you will save:
1. 3.5% of 10,000 = $350 a year.
2. 0.6%*90000 = $540 a year
total savings $890 a year, on a $10,000 outlay, is a spectacular 8.9% return, for a guaranteed fixed return today.
your monthly payment won't drop that much, since the loan terms are set, all you'll see is the pmi removed, but the payoff of your loan will be several years earlier.
Assuming you bought smart, and your payment is already less than rent, you have a good deal to begin with; Just a suggestion to make it an even better one long term! enjoy your home.
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swebb says
I think there is a 5 year handcuff. The new FHA changes propose a forever handcuff (as long as you have any loan balance).
0.6% is not horrible, it is set to go to 0.7%. for the 5% down payment, it will go to 1.3%. That is simply awful. It is spectaculary awful if it is handcuffed forever.
Spend but don't waste. This is wasting.
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KarlRoveIsScum says
very few...
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SFace says
I believe they are talking about a non-FHA loan with PMI. You are correct though that under the old FHA rules (till June I think) you can only drop the 1.3 PMI after 5 years AND 78% LTV. Which means you have to put ~10% down or make additional payments over those first 5 years to even drop it at that point.
The new FHA rules are ridiculous. Really only makes sense if your credit is shitty and you make enough to pay it off super fast (like 2x price to salary).
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SFace says
With an FHA loan I think you are right, but I got a conventional loan + PMI. There is either a 1 year or 0 year handcuff in my case. I'm pretty sure it's 0.
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robertoaribas says
Yeah, that is a consideration. The 3.5% of $10k is a savings but it goes towards principal pay down (and thus early payoff), and not money in your pocket today. Of course it still matters.
The second piece is savings off the monthly bill..but that portion of the 8.9% return evaporates after the point where you would have paid the balance down to 80% anyway (in my case 5 years). So while you do get that spectacular return today, it's only for 5 years.
If the house were in pretty good shape, and I had enough to fully fund all tax sheltered retirement accounts, I might pay it down to 80% LTV ratio, but it needs work. We are likely going to put some money into a kitchen renovation and bathroom renovation before we move in....so I need to keep the extra money freed up.
The reasoning goes like this (I think it's sane and correct):
I can pay down the balance to 80% to get rid of the PMI, but then I'd have to take out a loan (likely a HELOC) to do the renovation. Current rates are probably at least 4% and variable, which is more than my fixed rate + PMI combined. The other option is to use the money to do the renovation, and then have a new appraisal done to establish the 80% LTV ratio (I know, I may still have to throw some money at the loan to get it down). In that case the PMI goes away, and all of my house expenses are financed with a fixed (and lower) interest rate. (Also the interest is tax deductible. Is HELOC interest tax deductible?)
In the end it probably doesn't matter anyway. I don't exactly have money coming out of my ears, but the total housing cost is pretty low (
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There's a new loan program out there. 5% down at 4% interest rate with no PMI, no points, no costs. Loan value is up to $625k. This program is only for primary residence.
If I don't have the above option, I'd go with 5% or 10% down payment conventional financing and pay PMI. FHA is not the way to go.
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Do not buy a house. Fixed it for you.