*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.