*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.

[Kyle J. Cooper]

Are you using these loans to purchase a personal residence or an investment property? I find myself in a similar situation looking at lending for my first owner-occupied property. 

I would consider which option makes your monthly payment the lowest and give that some thought(this is contrary to the A-typical 'Dave Ramsey' thought process, buying property with a 15 yr fixed mortgage to save on interest). Assuming you're using this for investment purposes, the lower monthly payment would allow for higher cashflow over time, especially when you move and have it fully rented. 

If this is your personal residence then I would also go with the option that allows you to keep more of your money(less money in the deal). Money, especially liquid cash, will never be more valuable than right now(we can thank inflation for that). The more money you have tied up in equity, the longer you will be confined to a job/location to pay the bills, that fund the investment accounts. Again, this is all advice that's contrary to popular belief, but that's also what Bigger Pockets is all about. We're all a bunch of rebels!

Also, what about just selling the car and downsizing into something more moderate for cash? I drive a Honda Accord that I paid cash for. Looks great and will drive literally forever! This could solve your problem of the 9k left on a car note, which I assume is making your DTI outside of the Home Possible standards to qualify. Hope this helps!

Best of Luck!