General Question

chelle21689's avatar

Should I go with my bank or a broker for a home loan?

Asked by chelle21689 (6675points) December 29th, 2016 from iPhone

I’m not sure if I go with my bank for LPMI if t’s worth saving $80 per month losing out on $5,500 grant money. Please see below.
I’ve been working with a broker since before I even found a home.
Broker:
FHA at 4.75%
$5,500 grant toward down payment and closing
$2,500 paid by seller plus $545 toward warranty
$563.42/month plus $75 insurance
I’m already far in the process with the broker to close on the 12th. My bank claims they can get me a lower rate but we had to extend the contract out by two weeks. I think it may be too late to request for a grant if I do go FHA with my bank.
Broker CLAIMS that if I switch it will all go away (grant, seller paying for $2,500 closing and warranty). Not sure how I can lose warranty and closing when this was part of the offer to the seller.

Bank:
FHA at 4.12% (it may be too late to see if I can get a grant, not sure)
$515 plus $75 insurance fee
OR
LPMI
4.95% $0 monthly insurance at $558/ month

If I go with the broker who I’ve been with from the beginning, to be honest it will make closing much easier. We extended it two weeks due to holidays.

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26 Answers

ARE_you_kidding_me's avatar

Careful with FHA, you’ll pay mortgage insurance over the life of the loan so it’s not usually the best deal. 4.12% is not the best interest rate. Lender paid PMI is a gimmick to get you to pay a higher interest rate, 4.95% is a rip off. A broker will sell your loan and a bank will usually service it themselves and are easier to deal with..usually. I have had credit unions try to sell me mortgages with a balloon so they’re predatory at times too. Honestly this is a numbers game with a lot of variables. I personally would go with a conventional, say no to lender paid mortgage insurance then work hard to get the mortgage to having 20% equity and have the PMI removed. Those numbers sound like a 30 year loan. If you can afford a 15 it’s a better deal.

chyna's avatar

Your bank sounds like it wants to deal with you. Tell them that you want the grant and they have to let you know within a 24 hour period or you will stay with the broker. Also, I don’t recommend going with the 4.95% interest to avoid PMI. You aren’t actually avoiding PMI as you are paying a higher interest rate that will be forever. If you have PMI, it goes away after 20% of your loan is met.

Good luck!

JLeslie's avatar

Don’t pay more interest to avoid PMI. PMI now is governed by a law where it automatically falls off the loan (unless that has changed) whereas previously you had to write a letter to the lender to get it taken off when you’re equity was at 20%.

The grant money sounds good. I don’t think you should easily walk away from that. Maybe you can tell the broker you have been happy working with him, but your bank is offering a lower interest rate and can he do anything else to improve the deal. Maybe a small tweak will make you happy and provide the ease of staying with him and everything moving along as planned.

ARE_you_kidding_me's avatar

DO pit your bank, broker and other banks & brokers against each other. Rates on a 30 are at about 4% right now.

chelle21689's avatar

So LPMI won’t work in my favor if I just want to stay somewhere for only 7–9 years? It seems cheaper per month.

I want to see if my bank can get me a grant (OHFA) at their rate 4.1% plus the tax credits (MCC) that my broker mentioned (40% tax credit off the interest rates paid)

I was also told FHA is good if I want to sell my home in the future and interest rates are high and it’ll stay the same.

JLeslie's avatar

If you will only be there a few years (which is very typical of first homes) then it might be better. Just do the math and see which Loan is cheaper in total, include all fees if you stay there 3 years and 5 years to give you an idea.

Also, make sure both loans have no prepayment penalty.

Try not to drive yourself crazy. Buying a house is so stressful.

ARE_you_kidding_me's avatar

FHA loans are assumable provided the buyers qualify, interest rates are sky high and they can buy you out of your equity. Lot of stars have to line up there. The FHA mortgage insurance is for the life of the loan. The grant sounds like a deal. I was never offered that. If that cancels out your your FHA mortgage insurance for like 9 years it could be the way to go.

chelle21689's avatar

The grant goes towards the down payment and closing cost. Not sure if I should be looking at that as making up for the insurance.

chyna's avatar

The grant will get you much closer and faster to your 20% pay down to eliminate the PMI quicker.

chelle21689's avatar

FHA doesn’t eliminate PMI, I believe it sticks with you for the life of the loan.

ARE_you_kidding_me's avatar

It does, FHA mortgage insurance is for the life of the loan.

chelle21689's avatar

That’s not what I was told. I’ll have to look it up again and see. =\

ARE_you_kidding_me's avatar

Those are some recent changes, If that grant cancels out the insurance it could be a good deal.

JLeslie's avatar

Wait. FHA insurance or PMI insurance? It’s two different things.

Count the total cost of the loan from the broker and the bank over 3 or 5 years. That includes down payment and monthly payments. Everything out of your pockets. Then just compare the two total numbers. Don’t worry too much about how the money is being spent. You could get all wound up in knots considering that higher interest rate might give you a bigger tax write off blah blah, don’t worry too much about the little details, look at the whole.

I’m guessing your PMI wouldn’t go away in just 3 or even 5 years because you pay so little into the principle.

Have you looked at a schedule of how much of your payment each month goes to principle? It’s very small if it’s a 30 year loan.

chelle21689's avatar

Regarding your answer:

That’s what my sister and bro in law said. Just get the total cost of everything to decide. I guess I’m going too much into detail.

I meet with the bank tomorrow to see how much total estimate would be.

chelle21689's avatar

Mortgage insurance.

Cruiser's avatar

I agree with @ARE_you_kidding_me figures and @JLeslie suggestion of working your broker to offer a sweeter deal. Both the bank and the broker work on commissions and they often will cut a better deal to get some commission over no commision. Both will more than likely close the deal and sell off your loan so the source of the funding is moot. Unless you are hyper fixated on the best deal possible dollar wise…go with who you are most comfortable with especially at today’s crazy low interest rates. Nothing is worse than a tedious and stressful closing.

JLeslie's avatar

In case you need it bankrate has a simple mortgage calculator and just click on “amortization table” and it will show you how much you pay each month to principal.

chelle21689's avatar

Thanks! This takes the fun out of buying a condo. They said mine is a bit unique cuz it looks like a house so I guess maybe I can call it a house lol.

This is definitely not the fun part! Thanks so much.

I’ll look at the principal paid… I see what you mean now that I compare the quotes where it says principal paid in 5 years. I have one last meeting tomorrow. I’m hopingor An easy decision. This feels like I’m dating two men and I’m trying to pick which to marry! Lol

chelle21689's avatar

So for the table look at which I would be paying the most principal?

JLeslie's avatar

@chelle21689 I wouldn’t worry about which you pay the most principal, because that’s simply a mathematical function of the interest rate. I only recommended looking at the table because for PMI to go away you need to get to 20% equity. So, in simple numbers, let’s say you buy a house for $100k and you put down 10%. You need to pay in principal another 10% to get rid of the PMI charge. If the table tells you that will take 6 years then it doesn’t matter at all for your math, because you won’t get rid of the PMI amount before you sell it, if you plan to sell in 3–5 years.

Meaning, you can just look at the number in total like I suggested, and ignore any hope of your payment going down if the PMI goes away.

Does that make sense?

I agree with Cruiser that I think if you can not worry about if you spend a little bit more, but can keep the stress down it’s worth it. If you just do the main simple thing of seeing if the broker can sweeten the deal a little and go ahead and look at a grand total of spending for 3 or 5 years that’s enough analysis I think unless you want to dig more and look at the table.

Another thing good about the table, is you can see how the payments in the beginning years barely pay down your mortgage. You probably already know the interest payment isn’t an equal amount every month like your bank savings account. You can look at this two months from now though, if it’s too much to deal with now. Also, in the future you might be able to afford a 15 year loan instead. That saves a ton of money over time.

chelle21689's avatar

I know about PMI and the 20% but with FHA it doesn’t go away or with LPMI. I think I’m already too far in to go switching again.!

JLeslie's avatar

^^Most people don’t own their first place very long. Even if you spend $2,000 more over the time of owning it a few years you can just chalk it up to learning the process and saving yourself more stress.

Very exciting for you! Will you be buying new furniture too?

chelle21689's avatar

@jleslie I would have to. I’m actually looking today at a place closing down and leaving our city to move so everything is on sale…even though I don’t close until end of month.

I decided to go with my bank and the LPMI. The bank even lowered it to 4.62%. This saves me $83 more per month than the lender even though I will have to pay some fees. I will possibly lose out on the grant if I don’t get things moving for the ban. It would take approximately 5 years to recoup losses of the free money and fees. If I stay there for 7 years as planned, I would be saving over a couple thousand dollars.

And I guess I like having my bank as my lender since I’ve banked with them for years. Wish I had done it in the first place. The first lender isn’t letting up so easy though. I feel like I dumped someone who won’t back off and is making me feel bad.

ARE_you_kidding_me's avatar

The bank is doing lender paid pmi? If you’re not staying there too long it may not be so bad but if you’ll be there a while then reconsider simply paying the pmi and getting a better interest rate.

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