It was only about 45-minutes after I launched the post detailing how we were going about getting an FHA mortgage to buy a second house (with co-signers/co-borrowers) that the mailman delivered a whopping envelope of information, including our commitment letter.
As we read through it and everything that it carefully outlined, it was apparent (for the first time, to me, which doesn’t mean that it wasn’t outlined and something I should have noticed before) that we would be paying an extra $200+/month in our monthly mortgage payments by getting an FHA loan, regardless of our downpayment, because of mortgage insurance.
That’s like, a lot of money, right? It made me want to vomit.
The terms of the FHA mortgage we secured state that even if we put down 20% of the home value at closing (reduced the LTV to 80%), we would still be stuck with these insurance charges for 5 years. It wasn’t this way when I bought my house originally, not that I was able to put 20% down by myself, but I was more aware of the rules of the loan and knew what I was getting into. This time, I assumed wrongly that it hadn’t changed, figured we could avoid it all together or at least within reasonably short time of buying our home, and ended up being very surprised by how things had changed.
In a small way, by securing a FHA mortgage loan number earlier in the year, we were “lucky” to have the opportunity to drop these insurance fees after 5 years if by that point we had paid off 20% of our home’s value. I mention that because as of today (quite ironically), FHA laws change again and mandate that any FHA loans initiated are stuck with those insurance charges for the life of the loan regardless of the LTV ratio. What a price to pay, it totally and completely blows.
What I’m getting at here is the day that we received that stack of paperwork including the Commitment Letter, we immediately started researching how we could go about getting our mortgage conventionally, not an easy feat considering all that we had been through so far just to get a loan with cosigners, but one we felt worth exploring and pushing for. It was like starting from scratch, trying to get Pete a conventional mortgage loan without cosigners, and without me, since we still hoped to use our house as a rental property.
An FHA loan has been the fall-back plan all along, we knew we were walking a fine line in being able to do a conventional lon, but after nearly 4 weeks of back and forth with our mortgage team, more paperwork, more financial reviews, and more headaches, we finally received word on Friday that we would be able to proceed conventionally (and save over $12,000 over the course of 5 years, plus save several thousand dollars in extra closing costs). While getting to this point has held us up a little in the process, and happens to be the biggest reason we haven’t closed yet, it’ll be worth it.
Holy mortgage drama, yo. I’m sharing these details knowing that there are others out there going through similar battles to achieve homeownership. It’s often a lot harder than it seems to buy a home, at least neither of my experiences have been easy, but with organization and a lot of persistence, it can pay off. And with all that said, if anyone is looking for a solid team of mortgage specialists, please email me and I’ll share contact information. They’ve worked really hard for me to secure my mortgage 4 years ago, and again with this new loan, and I would highly recommend them.
5 Comments
We ran into this problem when we bought our house with an FHA loan six months ago. We are planning to pay off within five years so the extra amount wouldn’t have been a huge burden, but I was still unhappy with paying a PMI charge when we were putting down such a large downpayment. What we found out eventually was that we had to put down 22% to avoid PMI and paid a $600 one time mortgage insurance fee. We had a lot of runaround and confusion because the mortgage brokers were confused about FHA guidelines. Also our mortgage broker and the seller’s realtor quit in the five month buying process and we didn’t find out until closing and a whole bunch of other weird stuff. But you might want to see if that’s a hidden rule you could blog about, because I know it saved us a lot of money in the end.
Good tip, Lindsey – articles I found online cited all different kinds of rules and timelines, no one had ever mentioned 22% down with the one time fee! I know that as of today all of those rules changed again, though I believe loans that are for 15-year mortgages might be more flexible on the temporary PMI.
I’ve been there. I can tell you that Marie Coco at Canandaigua National Bank (I think she works in both the Pittsford and Brighton offices) is seriously the best. I ended up continuing with the FHA through Chase because it was a matter of timing and losing the house if I had started over (our situations are remarkably similar) but Marie was able to identify options and I can’t recommend her enough.
Wow, I had no idea about the 5 year rule with FHA loans! I was under the impression that once you get to 20%, the mortgage insurance disappears. And now that’s for the life of the loan? It almost doesn’t even make sense to go with FHA anymore. So glad you were able to get a conventional mortgage.
Not only that, Anna, but now my understanding is that the PMI is attached to the loan for the whole 30-years! No dropping off. Sucky!