Looking to buy first property, FHA or 20% down?

Question

Hello all, first post! I moved for work into a fairly hot market for real estate, Asheville NC, and I’ve been seriously considering real estate in the area as people are coming here in droves. I don’t have a ton of capital, as I’ve been maxing out my tax-deferred accounts for the last few years, but I’m willing to slow it down a tad. Part of the reason is because of my relocation package. The relocation packages states it will: “reimburse normal and customary closing costs not to exceed 5% of new purchase price”. The main reason is because I want some diversification in my assets.

How big of a deal is this? I’ve heard closing costs can be around 5% of the purchase price. Is this what people usually pay? I would have to purchase the property by September of 2019 for this reimbursement to be valid. I might not have 20% down for a multi-family by then, which is the property type I’m eyeing, so the biggest question I have is with the reimbursement potential. Is it best to hop in with a FHA loan if I see a deal, paying the PITI, or would it be more advantageous for me to save up the 20%, saving myself the PITI, even though I would be paying closing costs if my down payment isn’t big enough down the road? If it matters, I have excellent credit (around 800).

Thanks for any advice and please let me know if I need to clarify anything!

Michael Bru · Answer

Appreciate all the replies!Robert, yes, I am here in Asheville now. The market here is a bit high, with most multi-family units starting at 380K and up which is a pretty healthy chunk of change. Not entirely sure if prices have been cheaper in the past, has stayed the same, or has actually gone done. Much research to do.Melvin and Samuel, those are some great points. I definitely have to look at all my possible loan options.I'm a federal employee, so my relocation expenses are provided by PCS/DFAS. Some more details here:

Reimbursement must not exceed 10% of the actual sale price on a Sale of Residence at the old PDS. (I did not sell a house when I transferred here)

Reimbursement must not exceed 5% of the purchase price on a Purchase of Residence at the new PDS.

A lot more information can be found here: https://www.gsa.gov/cdnstatic/GSA_Home_Purchase_Ma...

Thanks again for the information, it's much appreciated!

Melvin List · Answer

@Michael Bru I would have a lender in your area compare FHA 3.5% down to Freddie Mac's Home Possible with 5% down

Samuel Collier · Answer

unless your credit score is an issue I dont see an advantage to going FHA over a conventional. On a single family home you can put as little as 3% down on a conventional loan if you're living in the property, and a 2 unit only requires 15%

Chris Mason · Answer

Don't say no to free money, and do what @Melvin List said.

Equity in a home and retirement accounts are both forms of saving; might want to consider dialing back some of the retirement contributions in favor of paying down your balance to drop the mortgage insurance.

Robert Ombres · Answer

Great questions. There are many factors involved with closing costs and often times the can be covered as part of negotiations. It would be helpful to know more about the relocation package to get a full picture and how to best leverage your benefits, the lender, and the market conditions.

Are you here in Asheville now?

Aaron Poling · Answer

If you find the right deal and fha is the only loan type available I would jump on it. I also would make sure to use the relocation package before it expires. You may want to check on other loan types that may require PMI but would eventually fall off unlike with fha loans. Some lenders may have a conventional loan product with as little as 5% or 3% down. This may be better than the fha.

I find that closing costs are typically 3% of loan amount, but could be higher in different areas. If your area requires that buyers pay transfer stamps, you will also have to pay for your appraisal, inspection fees, homeowners insurance policy, etc... You may want to contact the preferred lender and title company from your relocation package and get estimated closing costs for your particular area.

Hope this helps! Aaron

Looking to buy first property, FHA or 20% down?

Looking to buy first property, FHA or 20% down?

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