Question by Ski03: Please help me decide between 2 mortgage loans.?
Both Rates are locked and I need to decide for sure in a few days.
I can either get an FHA loan with at 5.5% interest with a 5.79% APR including insurance and only 10% down or a 5.5% interest loan at 5.6% APR with 20% down.
They are both 15 year mortgages. I am wondering if the FHA loan would be better even though the interest rate is higher since I could probably make an average of 8-10% on the stock market and if rates drop I can refinance and get a refund for the mortgage insurance.
The purchase price is $ 400, generic about it 000. I am 24 and have $ 250, stuff adiposity 000 to my name. The nature of my business is not very secure however I expect to make appx $ 200, medical 000 per year for the next few years but it could potentially drop off.
My credit is meh which is why I am not getting a 30 year loan. I expect my credit to be well over 700 within 6-24 months. I am considering refinancing in 2 years but I don’t know how much of a gamble it is on interest rates.
Thanks,
Nick
Best answer:
Answer by cmatthaios
I personally do not like messing with PMI, so I would take the second one. In the future if you need a HELOC they will look at your LTV, which is your equity on the house. You obviously will have more with the second loan over the first.
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If you can afford to put 20% down, the the 2nd loan is superior to the FHA. The APR is lower, the principle balance is lower, and the monthly payment would be significantly lower because at 80% LTV you won’t have to pay PMI. Given the nature of your income, etc, the lower payment keeps your overhead lower and reduces your risk of cash flow problems.
Anyone who recommends an FHA loan for someone with 700 FICO scores and the ability to put 20% down is giving you bad advice. Don’t factor in the stock market stuff- you evaluate loans on their individual merit. FHA is for people who are cash poor and credit challenged. And no matter how much you pay it down, you’ll always have MIP/PMI on it. As for possibly refinancing, you want a loan that you can live with just in case you are unable to refi.
One piece of advice I’d offer is to get a 30-year loan and still make the same payments as if it were a 15-year loan. That way, if the creek runs high, you’ll have a lower minimum payment. If everything goes fine, you’ll still pay it off in 15 years.
Good luck
Take the conventional loan. Don’t worry about paying the loan off. If you pay later you’ll pay with cheaper dollars. If you have to bail out of the loan you will be leaving less of your own money when you leave.