Recently I wrote about neighbors in West Seattle who were looking for a new place to rent because they have two cats and a dog, limiting their options. I’ve pets my entire life, this is my cat Rocko at his typical hang-out where he can view everything on our stairs.
In my last post, I shared Fannie Mae’s Home Ready Mortgage program which offers a low down payment with improved pricing on rates and mortgage insurance.
In this post, we’ll take a look at FHA mortgages as a possible option. FHA is another low down payment option that can offer more flexible underwriting than some conventional programs. The minimum down payment allowed for an FHA mortgage is 3.5%. FHA has both upfront and monthly mortgage insurance that does not “cancel out” when your loan to value or home equity reaches 80%.
With the goal of keeping our payment close to $2200 and using the least amount of funds for down payment as well as pricing our rate as close to “par” as possible (little to no discount points), we are at the same sales price with FHA as we were with the Home Ready scenario.
Sales price: $320,000
Loan Amount: $314,204 (includes upfront mortgage insurance premium)
FHA 30 year fixed interest rate (as of 1:45 pm April 24, 2018): 4.625% priced with -0.025 points (very small rebate credit of $78.55) with an APR of 5.680%.
3.5% down payment: $11,200. Total estimated funds due for closing, including the down payment, closing cost and reserves (taxes/insurance): $17,522.09. NOTE: The funds can be a gift from family members, IRS refund or even borrowed against your 401k.
Monthly mortgage payment: $2,215.95 includes principal and interest of $1,615.45; estimated home owners insurance of $50.00; estimated property taxes of $333.33; mortgage insurance $217.17.
The Home Ready program from my earlier post has a slightly lower payment as well as less funds due for closing. In my opinion, the most likely reasons why someone would opt for FHA over the Home Ready would be because their income exceeds the limitations for a property with Home Ready, their debt-to-income ratios are higher or perhaps the home buyer had a bankruptcy, foreclosure or other past credit issues. Another reason why someone might opt for an FHA mortgage over conventional is because they pay alimony and FHA treats alimony differently than conventional mortgages.
If you’re tired of paying rent and are considering buying a home, I’m happy to help you…even if you still have a year left on your lease, it’s never too early to get prequalified and to start working on your preapproval by improving credit or focusing on savings. Often times, doing things that are “common sense” like paying off credit cards may actually not be the right steps for buying a home and getting preapproved for a mortgage.
Rates quoted are subject to change and loan terms are subject to credit approval. This is just a small sample of the mortgage rates and programs that I have available. If you would like me to provide you with a mortgage rate quote for your home purchase or refinance on your home located anywhere in Washington state, please click here.
PS: Stay tuned… I will be providing another scenario in an upcoming post featuring down payment assistance.