First mortgage advice?

Question

I'm looking around to find out where I am getting my first mortgage loan and what type of loan I should get.

I currently live in South Florida, and want to buy a home, but my job requires me to go on temporary duty out of state for lengths of up to 2-3 years. I know this can complicate FHA loans, but do conventional loans through banks, etc. have rules against this?

Also, I have talked to mortgage consultants and they have shown me cost illustrations for a conventional loan through mainstream banks that have minimum down as low as 3% with a 4% APR, and the monthly payments seem very reasonable. Do those numbers sound realistic for a conventional loan or am I getting fed BS numbers? The consultant also told me the banks rates beat FHA rates as well.

What is the feeling about going through banks like Wells Fargo for mortgages? People tend to give me the stink eye when I mention large banks...

Kevin Quach · Answer

Awesome info! I guess it's time to go back to my spreadsheets...

Thanks again, Jerry!

Jerry Padilla · Answer

@Kevin Quach

I am just here to educate you ;-)

You can still go conventional, just with investor financing - which requires the 15% down versus a primary only requiring 3-5% down. Your rate will be slightly higher as well, but not much. Your mortgage insurance is going to be lower with putting down a 15% down payment versus the 3-5% down payment.

Kevin Quach · Answer

Well I definitely want to be within the rules, just to be clear. I am new and have never bought home before!

I'm starting to see that based on my situation where I would have to on temporary work duty out of state within the first year, I cannot get a conventional loan. Should I search for a investment loan instead?

Thanks for the replies by the way.

Jerry Padilla · Answer

@Kevin Quach

If you are not going to live in the property the full year, you may want to consider going the route of conventional financing which would require 15% down payment.

You may be ok, going primary financing with close to a year, but I can't guarantee anything as it goes against guidelines. Although rare, I am sure it is possible they could call the loan due.

I am not trying to scare you, I just want you to be aware of the guidelines.

Kevin Quach · Answer

I am starting with 1 SFH that will live in for most likely less than a year, then will become a rental while I am away, potentially becoming a buy and hold rental depending on what I feel like doing when I come back.

If a conventional loan requires me to live in it for a year, what would be good alternatives, or what other options do you recommend? Are all conventional loans like that?

Kevin Quach · Answer

No - civilian. I work directly with them though, hence the travel.

Kevin Quach · Answer

Well the "loan illustrations" I was provided by the bank shows these numbers:

Conventional -  3% down APR of 4.094% with a MI of $89.12/month

FHA - 3.5% down APR of 4.822% with MI of 118.62/month

This is where I got the information that conventional rates are lower than FHA rates. I was surprised to see these numbers myself, showing that conventional rates are better. I have 700+ credit, so not concerned on that end. I'm not necessarily getting a mortgage from a bank that I currently bank with either.

In your opinion, what would be a good lending source if not a mainstream bank? I don't think hard money would be good for me because it would be more expensive to borrow is what I understand. Private money?

Matt Turbitt · Answer

you're not in the military are you?

Jerry Padilla · Answer

Conventional and FHA both require you to live in the property for one year. I don't see a problem if you intention is to live there for a year and you don't have any knowledge of being transferred in that first year period.

There are a lot of factors with your rate including credit, down payment, type of financing, SFR vs MFR.

How many units are you intending to purchase a SFR or a MFR? The 3% down for conventional is for a single unit property only.

There are moderate to big banks that are investor friendly....... Some are not and that is why some investors say this.

You want a lender that has very little overlays - allow cash out on up to 6 properties, allow financing up to ten properties, use rental income with a mortgage history. These examples are just a few details that can make or break your deal sometimes, that some lenders have further overlays of.

Another thing to consider is the loan officers individual experience with investor financing and knowledge of guidelines as well. A loan officer that is well educated on investor financing knows the small details that make or break your deals as well..... For example FHA financing limits you to 7 units total when you apply for a loan, including subject..... So if you already own a 4 unit investment property with conventional....... You could only go up to a triplex with your primary purchase.

Graham Parham · Answer

I'm not sure where you got the information that conventional rates are lower than FHA rates. FHA is more forgiving with their rates and their FICO scores more so than conventional financing. The type of rate adjustments that are made to Conventional Lending really starts to kill you when you drop below a 700 credit score. FHA doesn't do that as bad.

Yes, conventional does offer a 3% down but you still have to take into account the private mortgage insurance. FHA on the other hand requires three and a half percent down and also has mortgage insurance. You would have to wait both of them out plus the rate comparison. Keep in mind the FHA mortgage insurance stays with you for life and conventional does not.

As far as the big banks are concerned I used to work for one for several years back before the 2008 mortgage meltdown. In my opinion the banks actually focused on the consumer more so than the stockholder before then. These days your front end personnel, i.e. the loan originator at the bigger Banks don't have the seasoning and the knowledge base as well as the customer service practices that a loan officer from a hybrid lender would have. Bigger is not the best when it comes to mortgage lending. Just because you've been baking there for years and it gives you the warm and fuzzy you may not get the type of service that you would be expecting

First mortgage advice?

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