Are all FHA mortgages created equal?

[MDhasbeen]

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I am in the earliest stages of buying a single family home with my spouse. I called our hospital's credit union, and they told me based on my situation (not much for down payment) that an FHA loan would best suit my needs. However, I believe the insurance on said FHA loans are not tax deductible and that you (last I heard) must pay said insurance on FHA loans for 5 years, even after you have 20% equity built into the home. This was a huge turnoff as I'd wanted to prepay over time to get rid of the insurance ASAP.

I met with a realtor recently. They suggested we go through one of those private banks with doctor-based mortgages (ie 0% down). Even though it seems their rates will inevitably be higher, the upside seems to be that you don't have to pay insurance so all the interest would be tax deductible. I imagine their fees will be higher, though. I know to compare the APR's based on what I've read here (thanks for that tidbit!). So now I'm being directed to said private bank to do a head to head comparison of the private doctor loan versus the FHA option. Question I had is: will the FHA loan be the exact same thing through the private bank versus the credit union? Will the private bank have potentially higher fees or other hidden costs I'm not thinking of? Just wondering if I have to get the credit union involved for the FHA loan option to get a better package. All advice greatly appreciated!

 

[danzman]

I am not sure about the FHA, but I cant imagine that they would be different. I recently went through this mess and was told to try to get a private bank to do everything as it would save big up front and you would have more negotiation ability. Also, there were issues with FHA loans based on timing. We sat down with a mortgage lender who penned everything out for us and if you had even a small down payment, the private firms seemed to be a better deal. In the end we decided to rent for a year rather than rush into a place, but I am also curious what you find out.

 

[dpmd]

I am in the earliest stages of buying a single family home with my spouse. I called our hospital's credit union, and they told me based on my situation (not much for down payment) that an FHA loan would best suit my needs. However, I believe the insurance on said FHA loans are not tax deductible and that you (last I heard) must pay said insurance on FHA loans for 5 years, even after you have 20% equity built into the home. This was a huge turnoff as I'd wanted to prepay over time to get rid of the insurance ASAP.

I met with a realtor recently. They suggested we go through one of those private banks with doctor-based mortgages (ie 0% down). Even though it seems their rates will inevitably be higher, the upside seems to be that you don't have to pay insurance so all the interest would be tax deductible. I imagine their fees will be higher, though. I know to compare the APR's based on what I've read here (thanks for that tidbit!). So now I'm being directed to said private bank to do a head to head comparison of the private doctor loan versus the FHA option. Question I had is: will the FHA loan be the exact same thing through the private bank versus the credit union? Will the private bank have potentially higher fees or other hidden costs I'm not thinking of? Just wondering if I have to get the credit union involved for the FHA loan option to get a better package. All advice greatly appreciated!

The insurance on the FHA loan is tax deductible but phases out above a certain income level. You are stuck paying it for five years even if you pre-pay, but you could refinance and get out of it when your loan to value hits 80%. The FHA loan will have the same fundamentals wherever you get it, but different lenders might get you different rates. You will just have to crunch numbers to see which option (FHA or other) is better for you. If you are just starting, keep in mind that you may wish to rent for a while so you don't geographically limit yourself (in case you hate your new job and need to move). Another option would be to get a less expensive house that you could make a 20% down payment on (either now, or after a few paychecks with you spending wisely)

 

[MDhasbeen]

The insurance on the FHA loan is tax deductible but phases out above a certain income level. You are stuck paying it for five years even if you pre-pay, but you could refinance and get out of it when your loan to value hits 80%. The FHA loan will have the same fundamentals wherever you get it, but different lenders might get you different rates. You will just have to crunch numbers to see which option (FHA or other) is better for you. If you are just starting, keep in mind that you may wish to rent for a while so you don't geographically limit yourself (in case you hate your new job and need to move). Another option would be to get a less expensive house that you could make a 20% down payment on (either now, or after a few paychecks with you spending wisely)

Thank you for the very helpful info! I was thinking along the lines of refinancing. Of course the risk of that is the inevitable rate increase in the future no matter how distant. I'm working in one of the lower paying specialties. My spouse only works part time so can't contribute much towards the savings. Meanwhile, I have a mortgage payment of student loans, disability insurance, and an unexpected car payment (spouse's car died last fall) to suck away my savings (though I refuse to not contribute the max to my 401k/403b). My location is also in a higher cost area on the East Coast. You can't get much of anything around here without countless tens of thousands down. Even without all these expenses, it would easily take me a couple years to have the minimum 20% down on a decent house. Since the rates are so low now, I really wanted to find a home I could grow with over time. I've been at my current job for over a year now, and it's been great... I'll shop around and see what I can come up with.

Other than the rates likely going up, what are the major drawbacks to refinancing again? I've heard there are lots of upfront fees. How much do banks typically ask for? Is it hard to qualify for them?

 

[dpmd]

The fees are the main problem with a refi, plus the hassle of getting all the paperwork they want. I am doing a refi for my FHA loan right now through ING direct. They had the lowest rate out of anybody I checked and low fees. They only do 80% loan to value though so I am going to have to put in a big chunk to make up the difference (only had the FHA loan for 3 years and the place appraised for less than the purchase price). The actual loan fees are only about 2K (plus the prepaids, but the nice thing is no more escrow account). And the hassle hasn't been that bad, but certainly not as simple as the refi I did for my med school condo (when you could do stuff with minimal documentation). If you have your papers well organized it shouldn't be that bad.

The only reason a refi made sense for me is because the decrease in interest rate made up for what I was going to lose in fees (although you could make an argument that the extra money I am going to have to put in to payoff my other mortgage skews the numbers. I couldn't find a good calculator that would address that since it involves things like the mortgage on my rental condo having slightly higher interest rate but my plan is to use my extra money on paying off that mortgage-I would refi that one but rental rates aren't as good and in the time it would take to recoup those fees I could just pay off the damn loan anyway). If you get a really good rate now and want to refi in a few years but rates have gone up, it may no longer be worth it. If either of your parents would be willing to help you with the down payment that might be a good option.

 

[MDhasbeen]

The fees are the main problem with a refi, plus the hassle of getting all the paperwork they want. I am doing a refi for my FHA loan right now through ING direct. They had the lowest rate out of anybody I checked and low fees. They only do 80% loan to value though so I am going to have to put in a big chunk to make up the difference (only had the FHA loan for 3 years and the place appraised for less than the purchase price). The actual loan fees are only about 2K (plus the prepaids, but the nice thing is no more escrow account). And the hassle hasn't been that bad, but certainly not as simple as the refi I did for my med school condo (when you could do stuff with minimal documentation). If you have your papers well organized it shouldn't be that bad.

The only reason a refi made sense for me is because the decrease in interest rate made up for what I was going to lose in fees (although you could make an argument that the extra money I am going to have to put in to payoff my other mortgage skews the numbers. I couldn't find a good calculator that would address that since it involves things like the mortgage on my rental condo having slightly higher interest rate but my plan is to use my extra money on paying off that mortgage-I would refi that one but rental rates aren't as good and in the time it would take to recoup those fees I could just pay off the damn loan anyway). If you get a really good rate now and want to refi in a few years but rates have gone up, it may no longer be worth it. If either of your parents would be willing to help you with the down payment that might be a good option.

Wow. Sounds like a huge, complicated hassle-- just like buying to begin with! 🙄 Wish my parents could help out, but my dad was laid off years ago and they've been living off their savings. It was bad enough that they volunteered to help with our wedding costs (and our wedding was bare bones in terms of the average wedding cost these days). So yeah, we're kind of stuck. But we're at a point in time now that we're thinking of kids and the whole spiel, and it just can't happen in the apartment we're at. And if we're going to move, might as well make it a move to a place while the mortgage rates are still low. It's pretty obscene when you crunch the numbers and see how much you're really paying for what you said the house was worth. But the same thing goes for med school loans etc. At some point you just have to disengage mentally, find something that fits your budget, and just go with it whatever it takes.

Nice avatar, btw. My spouse works in a planetarium. 😀

 

[touchadream]

When you do start shopping for mortgages, bankrate.com is a great source for comparison of fees, rates, and works by zip code. Also good, well, used to be anyway, for finding deals on money market rates, CDs, online checking interest, back when they all paid something. Still a top notch comparison site with good calculators, including a refi calculator which will show you with fees how long it will take to recoup after an interest rate reduction. Good luck. Last refi we did (husband is neurorad, I'm a lawyer/investment/tax advisor) was totally online and got a great rate. Paperwork was a hassle but it was done and we got the terms we expected, better than anything local at the time. I think interest rates are going to stay low for a while yet. Remember that each time they go up, the national debt rises exponentially and no politician can currently afford that to happen, so all are trying to avoid disaster by keeping them low. Last time Bernanke said middle of 2015 before a rate raise at the fed, so you will probably have some warning anyway if you pay a little attention to the fed rate.