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Using a 30 year fixed FHA loan with 20% down then refinancing to a 30 year fixed conventional loan in 3-6 mos. What are the pros/cons of this? I do not qualify for a conventional loan due to my work history at this point.
Asked
9 months ago
Anonymous
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Well, there’s a couple of items to consider on your scenario: FHA/HUD charges 1.75% of the loan size as an upfront Mortgage Insurance Premium cost, which can be included in the loan but is not refundable if you pay the loan off with a conventional loan; you face the possibility of the home appraising for less when you do the refinance (will need a new appraisal); rates may well be higher in 6 months than now, which would lower the savings of eliminating your monthly MIP. That being said, if you qualify now for an FHA, have the home you want, and don’t mind the possibility of staying with the FHA if all else fails, you don’t have anything to lose other than the upfront MIP charge!
8 months ago
Ted Rood
said:
Another item to consider, IF you are sure you cannot get a conventional mortgage now, is that at least FHA rates are typically less than conventional and/or you may be able to have your lender pay more of your closing costs if you go the FHA route. FHA backed mortgage securities sell at a premium compared with conventional, and as a lender I often have the ability to pay most or all my clients closing costs on those loans.
Chek with other lenders. If you are self-employed, earn substantial bonus or commission income or are a part-time employee, you may have issues with conventional. However, generally speaking you can get away with just 30 days of paystubs on a newer job especially if you are employed in the same line of work. If you changed jobs to better yourself financially you have a solid explanation of the job change and can usually be overcome in underwriting. If you have good credit and can go conventional, all things considered – go conventional. The Mortgage Insurance per month is less and you don’t have that nasty 1.75% upfront premium to pay. If you don’t like the answer your lender gives you – go to another lender.