*Complicated FHA VS HomePossible situation* Need help!

[Sebastien Beauboeuf]

My gf and I are in a situation where we have the option to choose between FHA or HomePossible. In either cases we would be putting 10% down and planning on refinancing out of mortgage insurance in about 2 years, after making renovations.

The reason home possible is not the obvious solution is because we don’t quite qualify. To qualify we would have to reduce the debt remaining on one of our cars by 9k immediately.

For FHA, our out of pocket cost (including down payment, lender credit, closing costs) would be about $66.3k at 3.25% interest.

For homepossible, our out of pocket cost (including down payment, lender credit, closing costs and lump car payment) would be about $77.5 at 3.125% interest.

The FHA doesn't look so bad but because of the upfront 10k mortgage premium, we calculated that home possible would save us about $13.5k over those 2 years (calculations include monthly mortgage insurance payments and the 10k MIP). I also know that the 10k gets wrapped into the loan so we'd be paying it over 30y but it is an additional cost that we never get back.

I guess I'm trying to figure out if we should go FHA and spend less now but more overtime? Or go HomePossible and spend more now but less overtime? Thank you so much for taking the time to read this and offering some advice. I appreciate it.

[Perry Farella]

The FHA up front MIP, generally added to the loan , although not required, you could pay it in cash. That fee is 1.75% of the loan amount. So on a 100k loan that is $1750 added to the loan ( or if you wish paid in cash). So the end total loan is 101,750. But I look at it as making a payment on the extra $1750 for two years. At say 3% on a 30 year term , that payment on just the added $1750 would be some $7.36 each month. So paid over 24 months until you say you can refi out of it, that cost is 24 X 7.36 = $176.64. So you could view it as add the $1750 for the MIP into the loan but it costs you over 24 months $176.64 in extra payment . But you saved $1750 by not paying it in cash. So you have to decide if its worth it or not to pay $1750 in cash to lower your payment by $7.36 a month. This is why most never pay the 1.75% MIP in cash when you can add it to the loan at today's low rates. The payment grows by a small amount and yes you will then have to refi this full amount you borrwered in two years, $101,750 minus the principal payment that will reduce that over 24 months. But you get to keep the $1750 in you bank account.