Seeking advice on choosing the right mortgage option

Seeking Advice
1

I’m a first-time homebuyer evaluating different mortgage options and would appreciate some guidance:

  1. FHA 30-year fixed at 5.75% with a $6,600 upfront PMI and about $150 monthly PMI.
  2. 5/1 ARM at 5.88% with approximately $147 monthly PMI.
  3. Builder’s lender offers a 6.8% FHA 30-year fixed with a $10k credit.

I’m purchasing a home for $400k, have a credit score of 720, and plan to make a 5% down payment. My current rent is $2,400 per month. Which option would be most financially prudent in the long run? Any insights would be greatly appreciated!

2

I recommend the 5/1 ARM to avoid the large upfront FHA fee and the higher rate from the builder. Refinancing could be a good option within five years.

3

Zorion said:
I recommend the 5/1 ARM to avoid the large upfront FHA fee and the higher rate from the builder. Refinancing could be a good option within five years.

Be cautious with ARMs—they can increase rates unexpectedly.

4

@Phoenix
The 5/1 ARM locks the rate for five years, offering some stability. The risk is if rates don’t drop, you’ll face higher costs later.

5

Scout said:
@Phoenix
The 5/1 ARM locks the rate for five years, offering some stability. The risk is if rates don’t drop, you’ll face higher costs later.

Remember the financial crisis? Many planned on rates dropping then too.

6

@Phoenix
ARMs have their risks, but they’re not inherently dangerous with proper planning.

7

Have you considered conventional loans? They might offer better terms than FHA.

8

Branley said:
Have you considered conventional loans? They might offer better terms than FHA.

The 5/1 ARM mentioned is a conventional loan.

9

Brigham said:

Branley said:
Have you considered conventional loans? They might offer better terms than FHA.

The 5/1 ARM mentioned is a conventional loan.

Conventional loans can save on upfront PMI. Make sure to check how much the rate can increase after five years and compare the long-term costs.

10

Don’t forget to factor in the loan origination costs, which can affect the overall affordability of your mortgage.

11

I’d lean towards the FHA at 5.75%. The stability of a fixed rate might be worth the slightly higher costs, considering market unpredictability.

12

Who is your lender for the FHA option? It’s good to compare their service and reliability too.

13

What is your zip code and could you confirm your credit score? These details impact the specific terms available to you.

14

Amari said:
What is your zip code and could you confirm your credit score? These details impact the specific terms available to you.

Consider all fees associated with each option and ensure stability in your employment before opting for an ARM.

15

@Jesse
Both offers seem reasonable, assuming there are no hidden fees. An ARM might be beneficial if you anticipate financial stability and can manage potential rate increases.