Comparison between two Roundpoint mortgage options

[robr]

Looking at buying my 1st home. Never had a mortgage before or gone through the process.

Purchase price: $335,000
All the closing costs associated with each option are the same, so left those off the table.

Option 1: 30 year standard loan with 5% down
4.375% interest rate = $1589/mo
PMI $236/mo until 20% equity is reached
$800 closing cost credit

Option 2: 30 year FHA loan with 3.5% down
3.75% interest rate = $1497/mo
FHA adds a 1.75% fee to the total loan amount for an FHA loan, so I'd be financing about 10K more than Option 2 but at a much lower interest rate
PMI $364/mo for the life of the loan
$3233 closing cost credit

Basically the monthly payment works out to about the same for the first approx 10 years of the loan. That's about the time that 20% equity is hit and Option 1 PMI drops off.
Going with option 2 now keeps about $7500 in my pocket at close.
The PMI on years 11-30 of option 2 is another $87,000 over the life of option 2, so keeping the loan past 10 years would make no sense.

Do I gamble that 10 years from now, interest rates will be good enough that refinancing makes sense?
I was leaning toward option 2 originally with the plan to refinance later, but wife wants the security of option 1.
The more I look at this, maybe #1 does make more sense...........

I think one important thing I haven't done that I need to is compare how much principal is left in 10 years with each option.


- - - Updated - - -

The more I think about this, even without doing the amortization, Option 1 is putting $130/month more toward the principal than option 2, which is just throwing away that money. Over 10 years that's $15,600 more toward the principal, against a loan that starting out, is $10,000 lower than option 2.

Starting to seem like a no-brainer.

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Heh. Roundpoint just sent me the amortization charts. Even taking into account the 1.5% FHA surcharge baked into the loan, at year 10

Option 1 principal: $253,861.59
Option 2: $256,934.63

Surprising that that %age rate can make up all that difference. Option 1 is not looking good to me any longer.
Pay $7500 more up front, monthly payments are about $50/higher each month on option 1 (another $6000 in 10 years), and in 10 years, I'm only $3000 ahead on principal

 

[Stephen@NCAutoUSA]

Did they change FHA loan and pmi? I thought once you got 20% into your FHA you could get the pmi knocked off?

Foolish me if you can't... Means I've been paying extra principle every month when I could be buying car parts!

 

[robr]

If you got your FHA loan before some date in 2012 (I think it was), you can get it knocked off if you have 22% equity. If you get an FHA loan now, you can never knock PMI off, you have to refinance.

I just let my credit union take a stab at this (DCU), lower interest rate (4.0%) but they wanted me to pay them $3800 to provide the privilege of loaning me money, vs Roundpoint which was willing to pay me.

 

[silver2002]

In the bigger picture, the differences in option one and two are negligible. If you like the house and want a house - and it is in a good neighborhood with good schools - buy it.

So, then it becomes about getting the loan. I would go standard option one - and talk to your own bank [ and have another one on the side ]. I hear FHA can be a pain these days [plus the PMI stuff is robbery past 20% equity].

Some one gave me a great piece of advise once: If you like the house - even if there are problems like the roof or whatever, just buy it and fix it later - don't haggle - 5 or 10k is meaningless over the years - its about the neighborhood/schools and owning it to begin with. -

 

[robr]

Any more advice? I know there are a ton of mortgage experts on prime and I'm probably only a couple of days away from potentially making an offer.

 

[docjohn]

well comparing two loans at 30 years comes down to rate and up front costs.Don't forget you will get the interest benefit when you file your taxes,every dollar you pay in interest reduces you tax basis by one dollar.Can you negotiate with the lender to reduce fees if you bring your personal banking business to them.

 

[pvmike]

If you're using a 10 year time frame for the expected length of time you would own this home or refinance, then I would consider:

Option 3: 5% down, 30 year fixed loan with LPMI (lender paid mortgage insurance)
~4.625% interest rate = $1636.25/mo
No PMI
Balance after 10 years: $255,897.14

 

[Aaron94T]

The big question is how much do you guys LOVE the house? Can you really see living there 10 years down the road?

When I bought my first house I got a conventional 30 year fixed. Then rates came down a year later and I refinanced to a 15 year fixed. Then I moved 2 years later which made my refi a dumb move. The point I am trying to make is initially I thought I would stay in my first house a lot longer than 3 years, but it did not turn out that way. I should have known that a 1 car garage would not work for me in the long run. My 2 cents is that 10 years is many moons from now.

 

[robr]

The house and land and neighborhood are great. The school system is OK, but we won't have to deal with it for 5 years (my kids are in a charter school thru 8th grade). If we can 'choice' the kids into the district where we live now (3 miles away from this home we're looking at), we'll stay there indefinitely, it really is a great home at a great price. But we can't afford to buy in the town we live in now which really kills us, we have a ton invested and are very involved in the city and grant writing for park improvements and sit on a few municipal boards. But property costs are double what they are in the next town over. The wealthy are moving in, the people who have lived here their whole life are moving out. It sucks really.