FHA Loan, the Good the Bad. Experiences Please

Just wanted to offer a few thoughts on home buying:
*When deciding how much to spend on a home be very conservative with the amount. When I was single I bought a home for 50% of what I was approved for and often thought I'd be eating dogfood if I had financed the max! Maybe that will influence the amt you need for down payment?
*Never get an adjustable rate mortgage.
*I think a conventional mortgage would be better in the long run. It's not that far of a jump from 3.5% to a 5% down payment. Just wait a little longer to save the difference.
*Never believe what someone else tells you what you can afford per month--only YOU know what you can truly afford. When they start saying things like "just don't order a pizza every week....." you know you're over extended!
Good luck!

On my first home I had an FHA mortgage because I had so little money to put down as a deposit. For the home I currently own I have an conventional mortgage. One or the other doesn't really make that much difference. You will need to know in your heart how much money you can pay monthly. Owning your own home is not like renting at all. Every expense is on you including repairs. So the gas, electric, water, sewer, perhaps even garbage disposal are all on you. If something breaks you must fix it. The more you learn and know the more confidant you can be in the decision making process. You just need to figure out how much money you have to put down (leave yourself some money for accidentals) and how long you want this mortgage debt to extend for coupled with how long you intend to stay in the home. Denise P. also gave excellent advice. I hope this helps.

You have to carry some extra insurance, which you can opt out of after 80% of the loan is paid. Other than that, there is very little difference. Your home insurance and taxes will be held in escrow, as you pay toward them every month, and then you just send them the bill once a year. I like this arrangement better than trying to come up with quarterly payments. Also, you may have to go to some credit counseling to make sure you are ready to own a home and all that that entails. The extra money they give you for a down payment is actually a second loan that must be paid off before you sell the house.

Another thing to keep in mind is that with an FHA loan, the mortgage lender must verify any transaction over $1,000 in the bank account(s) in which the down payment is going to come out of. Not a huge deal, but can be a little bit of a pain in the butt - direct deposits are fine bc it is clear where it came from, but if your grandma gives you a big check and you deposit it, you gotta have documentation.

Nobody told us this until late in the game and I ran into a little bit of a problem with this bc I couldn't find documentation - it would have been a lot easier if I had known upfront.

FHA can be a little more restrictive about the property condition (you will need to have an inspection) and in a hot sellers' market this can be a negative, since the seller may need to make some repairs before you can get your loan. Since it's a buyers' market, that's not much of a concern. You may have difficulty if you want to purchase a fixer-upper, however.

We have had a FHA loan for the past 18 years and really haven't had any problem. To quailify we had to earn less then a certain amount which I am sure has changed with the economy. We had a interest rate that started out low for a year, went up a little for like 3 years and then has been set at what at that time was a low interest rate. Now the rates are lower but we are paying into the principal now and it wouldn't be worth starting over on interest. The payments go to the interest first and then down the road it will start paying some principal which is the one thing I don't like. You can save yourself a bundle if you pay a extra amount each payment to to towards your principal, but I think that would save on any kind of loan. Another thing I have noticed, after we pay for a while another bank buys out the loan so we have switched morgage companies at least 3 times in the 18 years. I don't think you would have that with a conventional morgage loan.

There is really ver little difference between an FHA loan and a Conventional loan with MI (mortgage insurance). For both, you will pay a monthly premium with your payment for mortgage insurance. The only difference you will see from your perspective is that with an FHA loan there is a 1% upfront MI that is due at closing OR can be rolled into the loan. FHA is also much more flexible on the source of your funds for downpayment and closing costs. FHA is the way to go for lots of people. I have been in the mortgage business for 12 1/2 years and have no idea why FHA has a "negative" view among people.

I don't really know much about the loan issue, but there are also some excellent programs such as Neighborworks that will help you purchase a good home. The can help you purchase a good home with a miminum down payment, sometimes they can get the bank to waive the insurance, give you a zero interest loan (for down payment or repairs) that only comes due when you move or sell the house (or in some areas the loan is forgiven if you live in the house a certain amount of time). Plus they are an excellent source for learning about home loans and guiding you through the legalities of home buying.

This is one example of a program to get you into your own home, I am sure there are other's out there. Most of these programs require you to attend a free homeowner's counseling session but even that has some helpful hints about what to do in the event of unforseen circumstances and home ownership.

Look into them all is my recommendation.

P.S. Winter is an excellent time to buy in the colder states.