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FHA loans vs Conventional loans - Get a bang for your buck - Large down payments aren't always the best way - Part 3 of 3 - 02-01-10

 

fha loans & fha mortgages

 

I have been talking about comparing FHA loans to Conventional loans and how to use your money wisely in my last 2 mortgage posts. The links are below and I suggest you reading them to find out what the fuss is all about. But in this post, I wanted to bring up 2 important points.

  • some people argue that you should put more money down if you have it, so you don't become up-side-down in your property (I disagree with this statement)
  • another point is that you could actually make a lesser down payment and take some of that extra money that you saved and use it to buy your interest rate down. It all comes down to your goals.

 

So, let's jump into this a little deeper...

 

 

 

upside down in your mortgage

So your fear is that you could be upset down on your property if you don't put 20% down or so? Let me pose a question to you. Why would it matter right now? Homes aren't suppose to be purchased like a car, to where you sell it or trade it within 2 to 5 years. Sure, unforeseen things can happen. But homes are suppose to be a place to live in, raise a family, possibly have your kids go to that school system, and for fond memories. And overall, it's a long term investment.

If you were to buy a home for $200,000 and put 20% down, you would have a mortgage of $160,000. What happens if in a year or so that value of your house drops to $165,000?  Then you have nothing at that moment. And if you needed money as an emergency, you just can't walk up to your house and say, "house, please give me some of money back." Especially not in today's market, because of the fact that it's tougher to get mortgage financing.

 

I don't have a crystal ball, but home values should come back in the next 3 to 5 years. And in some areas they have come back now. But if they don't, why not take the money that you saved from not putting it all down as a down payment and invest it, to make more money. It can happen, think about it. And worst case, you have that extra money for emergencies.

Please read - Don't be cash poor - Cash is king

 

 

 

mortgage interest rates

 

Onto the second part of this post, something else that you could do with your left over down payment. Buy your interest rate down, which allows you to get another bang for your buck. It's very simple math.

In my scenario below, you will be putting 10% down on a FHA loan as opposed to the required 3.5% down for all FHA loans.  I will show you the difference in mortgage payments and what you could actually do with that extra money, even when it comes down to lowering your interest rate.

 

 

 

 

FHA Loans – Comparing 10% down to 3.5% down

Scenario # 1

FHA loans - comparing 10% down to 3.5% down

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

My sole purpose in this comparison is to show that cash can be king and that you aren't hurt as much if you just put 3.5% down on FHA loans.  On the 10% down, you will be better by $4,193.60 in 5 years. But by putting 3.5% down, you are keeping $14,787 in your pocket upfront and your total monthly mortgage payment is only a total of $41.61 extra. In my honest opinion, that is a very good trade off in order to have more cash left over for several things such as :

  • monies left over to fix up the house
  • future home repairs
  • new furniture
  • loss of future income
  • family emergencies
  • possibly put some money into investments to get a better return

 

Overall, just left over cash for security for unknown circumstances....

 

 

 

FHA Loans – Comparing 3.5% down w/buying down interest rate

Scenario #2

FHA loans - comparing lower interest rate

 

 

 

 

 

 

 

 

 

 

 

Lastly, this is a very simple comparison. You now have the extra cash from scenario #1 above to use to buy down your mortgage interest rate. Not only do you save $91.22 per month, but it only takes you approximately 3 years to recoup the money that you spent to buy down your interest rate. As I have stated in several posts, the average person stays in their home for over 6 years. Your end result then is that you will save more money by buying down your interest rate.

 

 

 

Disclaimer :  The rates are examples in today's market, aren't any form of advertising, and aren't for solicitation of new business. It's merely to educate the consumer. And the spread shown in these examples are real as in the profit margins for both sides, in order to compare apples to apples.

 

 

 

For more FHA loans vs conventional loans comparisons :

 

Donw Payment Series - A Must Read -

  • FHA loans vs Conventional loans - Don't be cash poor!! - Part 2 of 3 - 01-29-10 I want to show even a bigger difference if you put less down. And even if you decided to put less than 10% down, because cash is king now. You can't predict even next week. And keeping in mind of some misleading rumors, that you need more than 10% down to buy a house.

 

 

 

 

 

 

follow Jeff Belonger on Twitter               The FHA Expert     

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

_____________________________________________________________________________________________________________________________

 

 

follow Jeff Belonger on Twitter

 

The FHA Expert's fan page on Facebook     Add Jeff Belonger to your network @ LinkedIN

                                                                            FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

Follow me on:

Mortgage Myth Busters

 

______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comment balloon 12 commentsJeff Belonger • February 03 2010 11:14AM
FHA loans vs Conventional loans - Get a bang for your buck - Large…
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I have been talking about comparing FHA loans to Conventional loans and how to use your money wisely in my last 2 mortgage posts. The links are below and I suggest you reading them to find out what the fuss is all about. But… more
FHA loans vs Conventional loans - Don't be cash poor!! - Part 2 of 3
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Don’t be CASH POOR – CASH is KING FHA loans have been used more in recent years. Many have talked negatively about FHA loans because of their high default rates as of lately. Don't be fooled by chatter that is not… more