Cost Comparison Part 5: The Numbers Add Up
Posted Fri, 2010-02-26 10:54 by Emily Caryl
This is the final post discussing the costs of obtaining a low down payment mortgage. You can also read the entire post here.
Comparing All Options
Clearly, for those borrowers who qualify, the USDA GRH and VA programs offer the least expensive financing. However, many borrowers must choose FHA or Conventional financing for the simple fact that they are not purchasing a home in a rural area or are not qualified veterans.
Why might a borrower choose a Flexible 97 conventional loan over an FHA loan? In most areas of the country, the maximum allowable FHA loan for one-unit properties is $271,500. The maximum allowable conventional loan is $417,000 for the same property type. In these areas, a borrower wishing to purchase a higher priced home may not have the option to utilize the FHA program.
In many high cost areas, however, the FHA loan limit is higher than (or comparable to) the conforming loan limit. In Jefferson County, the FHA loan limit is $437,500. In Clallam County, the FHA limit is $383,750. In these high cost areas, the FHA loan is a less costly alternative to the conforming program.
In addition, borrowers wishing to reduce their loan balance quickly, may also wish to choose a conventional mortgage option.
*Crunching The Numbers: All calculations presume a fixed rate mortgage with a 30 year term, purchase transaction, owner occupied, 700 credit score, single family detached residence, located in Jefferson County, Washington. USDA GRH example includes interest rate of 4.75%, APR of 5.088%, and guarantee fee of 2% financed into the loan. VA example includes interest rate of 4.75%, APR of 5.049%, and funding fee of 2.15% financed into the loan (the fee for regular military; first time use). FHA example includes interest rate of 4.75%, APR of 5.330%, up-front MIP of 2.25% financed into the loan and monthly MI of .55%. Conventional example includes interest rate of 5.125%, APR of 5.693%, and monthly MI of .98%. All examples include estimate of $600/year for hazard insurance and $2,400/year for property taxes. Cost comparison includes monthly MI payments for 60 months. Loan balance assumes all payments were made on time and no additional amounts were paid towards principal. Calculations do not include closing costs or pre-paids. All interest rates quoted were available on February 11, 2010.
Post new comment