What's bad about FHA loans?
March 23, 2009 7:45 AM Subscribe
Should I take this FHA refinance, or wait for the new mortgage plan to take effect?
Update to a previous AskMe. I bought a house in 2007 around the peak of interest rates, and am looking to refinance now that rates are low. Like a lot of other people, I'm having problems getting a conventional loan since decreased home values have led to an increase in my loan-to-value ratio. However, my mortgage broker tells me I can get an FHA loan and has written up an estimate. My current mortgage seems to be backed by FreddieMac, so I ought to qualify for the new mortgage assistance refinance plan, but my lender doesn't have guidelines set up for the program yet.
Currently I don't pay any mortgage insurance because I have a 2nd mortgage which brought my primary loan below an 80% L-V ratio. Under the FHA loan, I will have to pay mortgage insurance, but my monthly payment will still be lower than it is currently. My understanding of the new mortgage plan is that I would still have to pay some sort of insurance, but I might save a little bit at closing because appraisals may or may not be required - my lender requires 2 independent appraisals for high value FHA loans. So should I take the loan at 5%, or wait for the new mortgage plan? What is the down side to an FHA?
Update to a previous AskMe. I bought a house in 2007 around the peak of interest rates, and am looking to refinance now that rates are low. Like a lot of other people, I'm having problems getting a conventional loan since decreased home values have led to an increase in my loan-to-value ratio. However, my mortgage broker tells me I can get an FHA loan and has written up an estimate. My current mortgage seems to be backed by FreddieMac, so I ought to qualify for the new mortgage assistance refinance plan, but my lender doesn't have guidelines set up for the program yet.
Currently I don't pay any mortgage insurance because I have a 2nd mortgage which brought my primary loan below an 80% L-V ratio. Under the FHA loan, I will have to pay mortgage insurance, but my monthly payment will still be lower than it is currently. My understanding of the new mortgage plan is that I would still have to pay some sort of insurance, but I might save a little bit at closing because appraisals may or may not be required - my lender requires 2 independent appraisals for high value FHA loans. So should I take the loan at 5%, or wait for the new mortgage plan? What is the down side to an FHA?
Why you are calculating your savings remember to factor in that the 2nd mortgage was tax deductible. The PMI is not tax deductible. Not legally anyway!
posted by COD at 7:55 AM on March 23, 2009
posted by COD at 7:55 AM on March 23, 2009
Best answer: Datapoint: Nothing's wrong with FHA. We refi'd a year and a half ago and only now are the rates low enough where it's reasonable to consider another refi to take advantage of current rates (we're currently at 5.5%). Our loan is also assumable, which can be a nice sweetener if/when we look to sell in the short to medium term (which is looking increasingly likely, argh).
The inspections on the property required for FHA are more rigorous, but that in my mind is really only a plus for the buyer/owner - better to get a stringent independent inspection than a slapdash job done by a friend of the realtor or employee of some wholly-owned subsidiary of the mortgage holder. Some people object to the mortgage escrow account (to pay tax/mortgage insurance) requirement, but if they want to save me having to pay a couple of big bills every year, that's dandy. I don't live in the type of house, neighborhood or market where that escrow is fat cash anyway.
When we closed on our house 3 years ago, we left with $1500 in our pockets we didn't arrive with.
posted by Emperor SnooKloze at 8:02 AM on March 23, 2009
The inspections on the property required for FHA are more rigorous, but that in my mind is really only a plus for the buyer/owner - better to get a stringent independent inspection than a slapdash job done by a friend of the realtor or employee of some wholly-owned subsidiary of the mortgage holder. Some people object to the mortgage escrow account (to pay tax/mortgage insurance) requirement, but if they want to save me having to pay a couple of big bills every year, that's dandy. I don't live in the type of house, neighborhood or market where that escrow is fat cash anyway.
When we closed on our house 3 years ago, we left with $1500 in our pockets we didn't arrive with.
posted by Emperor SnooKloze at 8:02 AM on March 23, 2009
Hmm. We have had an FHA from day one and there is nothing wrong with it. People get hot and bothered about PMI but really, whatever. You're paying a lot of interest on that 2nd mortgage anyway, and as you can see from your calculations, at these rates PMI is not a big deal.
Try www.fhaoutreach.gov? I've really seen no downside to an FHA loan, completely in spite of all the moaning and crying people did on our behalf when we made the decision. 5% is stupid low. If we didn't have 5 1/3 % already, we'd refi as well.
posted by Medieval Maven at 8:28 AM on March 23, 2009
Try www.fhaoutreach.gov? I've really seen no downside to an FHA loan, completely in spite of all the moaning and crying people did on our behalf when we made the decision. 5% is stupid low. If we didn't have 5 1/3 % already, we'd refi as well.
posted by Medieval Maven at 8:28 AM on March 23, 2009
Response by poster: Just to clarify, I didn't necessarily mean that I thought anything was bad about them. I just wanted to play devil's advocate and see if there's any reason I shouldn't do this now instead of waiting.
posted by RobotNinja at 8:38 AM on March 23, 2009
posted by RobotNinja at 8:38 AM on March 23, 2009
This thread is closed to new comments.
One thing that I turned up in my research, which you may want to consider, is that once you start the process of an FHA loan, it's hard to stop it -- so if you started now, but then tried to stop it when you found out about the FreddieMac situation, it may take a while. So for that reason alone, it may make sense to wait until you find out about the FreddieMac situation and decide then.
But I'm basing this on some basic research as opposed to real hands-on experience.
posted by EmpressCallipygos at 7:52 AM on March 23, 2009