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Loan Options - Have foreclosure from May 2008

I'm in the market to buy a home. I had a foreclosure in May 2008.
A couple of points to consider: 1) I won an award in the National Mortgage Settlement class action lawsuit filed by my State AG as the lender did not take any steps to work with me in avoiding foreclosure; 2) all other aspects of my credit, employment, income, debt-to-income ratio, etc. are "excellent" according to one Mortgage provider I've engaged.
I have approximately 10% to put down, so I know I'll be stuck with PMI for a time.
This Mortgage provider told me I'm pretty much stuck with an FHA loan and the increased PMI and APR that come along with that.
Is this the case? Do I have other options?
Should I wait 1 year, 9 months to get the conventional (and maybe have the 20% down), take the FHA and then refinance into a conventional when I'm 7 years from the foreclosure? Other options?
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September 24 2013 - Austin
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Answers (10)

There is a strong chance of higher rates in 2 years. It is best to take advantage of current rates and just deal with the PMI. This will most likely be more cost effective then waiting about 2 years for a conventional which will probably have higher rates. These are just some things you should consider.

Well I hope this helps! If you have any further questions or if you would like a loan, feel free to contact me!

Good Luck!
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September 25 2013
I agree with most of the comments below.  Rates could be considerably higher in two years along with property values.  While nothing is certain.  IE: rates have been heading back down for the past week since the Fed announced that the easing is not starting just yet, anything can happen.

If you plan to stay in the home for a long time it probably makes sense to buy now and then look at refinancing options if they are available to you  You could start saving so that in 2 years you would have enough to put down so you would be at an 80% LTV ratio come that time  Depending on how the home possibly appreciates you may not need that much.

FHA is much less desirable these days because the MI is basically for the life of the loan now but if it gets you into a house and prices and interest rates continue to climb over the next two years you will be happy you did not wait.  

Also note that your APR is not the interest rate... you pay your interest rate.  APR is essentially taking the upfront MIP and some other lender fees and subtracting that from the loan amount.  From there they calculate the APR like an interest rate by using that as the loan amount.  The funny thing about APR is that brokers like myself can have a higher APR than another bank and offer the same interest rate with lower total fees. (I'm also a mortgage broker).  So don't get stuck on APR... always look at the total fees and the interest rate you are getting... that's the only way you will know you are getting the best deal.  That along with knowing the lender can get your loan done as promised.

Hope this helps.
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September 25 2013
I would say, FHA is your best bet for now. But, if and when the fed pulls out of their bond buying program, you will be happy you got locked in today. 
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September 24 2013
If you buy now.... and rates go up 2%..... the FHA you got today will be better than the conventional you get later. (you wouldnt refi later if this is the case)
Does this make sense?
One way to compare loans is to add the PMI factor to the interest rate. Current PMI factor is 1.35%

FHA does have lifetime PMI.... So that is another consideration.
Yet another consideration is rising home prices..... They aren't skyrocketing but they are indeed moving.

It sounds like you have a pretty good handle on things.
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September 24 2013
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Great advice everyone.
One of the things I am concerned about is the extra money I'll have to pay in the PMI Funding Fee and increased PMI that come along with the FHA loan. Add to that, the cost to refinance into a conventional loan in ~2 years. Not counting the refi charges, it's about an extra $13 k in PMI-related expenses in the 2 years I spend in an FHA waiting to refinance into a conventional.
Everyone still think I should strike now with an FHA?
(By the way, the APR I'm being quoted on the FHA is about 5.8 to 5.9%)
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September 24 2013
With prices going up so fast, it would be best to get an FHA loan, and refinance once you have the equity to remove the MI, other wise you will miss out on the equity gain that you would have in the next year and 9 months. 
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September 24 2013
The problem is mortgage insurance and which PMI company will do this. Freddie (Fannie requires 7 yrs) can state all day long that they will take a loan with just 10% down after 4 years, but will a PMI company insure it?

I would suggest going FHA and wait to refinance into Conventional. What's the worst that can happen? Rates rise and it's not in your best interest to refinance out of the FHA / Rates rise and yet it's still in your best interest to lose the FHA MIP via refinancing into a Conventional.
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September 24 2013

Buying a house would great in this market as we are seeing a increase in home equity.  If you wait 1 year and 9 months you run the risk that home prices go up and you miss on the opportunity to buy yourself a nice home and rates are still rather low.  As the statement below who knows where interest rates will be. 

You are putting ten percent down, with a low rate and mortgage insurance coming off in 11 years because you are putting 10% down.  If you follow rate these couple of years you might just be in a perfect spot.

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September 24 2013
If I were you, I would strike while interest rates are low.  Who knows where rates will be in 2 years.  You always have the ability to refinance later if interest rates stay low.
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September 24 2013
If I were you, I would strike while interest rates are low.  Who knows where rates will be in 2 years.  You always have the ability to refinance later if interest rates stay low.
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September 24 2013
 
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