Author Topic: Stuck in an FHA loan, but good income - options?  (Read 6740 times)

cbr shadow

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Stuck in an FHA loan, but good income - options?
« on: November 16, 2012, 02:41:05 PM »
My wife and I bought a small house (1260 sq ft) in a Chicago suburb about 3 years ago.  We paid $221,000 for it and only put 3% down so we got an FHA loan where we had to pay for PMI.  We were not very aware of what this meant, really, but were just excited to get a new home.  We both had good credit and I think our loan was 5.25% at the time.
About 3 months ago we refinanced for $209,000 @ 3.25%.  This brought our payments down about $200/month which was nice, but we're still carrying that PMI.  We pay about $215 / month in PMI. OUCH.
We owe about $207,000 on our house.  The house is currently worth about $210.   I read that there are (2) ways to get rid of PMI on an FHA loan:
1) Get house appraised - if we have 20% equity in the house then the bank drops PMI
2) Pay off 22% of the loan, AND have the loan for at least 5 years. 

Option 1 isn't happening right away becaues the house value seems to be right at 210k we think.
Option 2 is doable, but 5 years, really?  In 5 years we will have paid $13,000 just in insurance.  That's pretty rough.

What's our best option here?  Here is some information..
My wife and I are both 29 yr old.
My Salary: $50,000 before deductions
Wife Salary: ~$90,000-100,000 before taxes.  She gets $80k plus commisions/bonuses which vary a lot.

401k (Both employers match up to 4%, currently putting 10% each)
Hers - $21,000
Mine - $15000

Roth IRA (opened these yesterday)
Hers - $5000
Mine - $5000

Cash in Savings = $20,000

No credit card debt, no student loans, no car loans

I realize our retirement accounts are probably lacking for our age at the moment.  We both started college late but are doing well now. 

I'm wondering what we should do with our surplus money.. Do we max the Roth IRA every year, max 401k contributions, may down our mortgage as much as possible right now?  What's the smartest thing to do with our money right now?  This PMI hurts my heart.

Everything else seems to be in order.. We dont go out to eat much, no expensive hobbies, no large amount of shopping, good income, high MPG car (mine is a $5000 honda insight that gets 60mpg on my daily commute!) etc. 

Let me know what you think we should focus our money on.

Scuba Stache

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Re: Stuck in an FHA loan, but good income - options?
« Reply #1 on: November 16, 2012, 02:55:01 PM »
Option 3:Build 20% equity and get a standard 15/30 yr fixed loan likely around 3%.

cbr shadow

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Re: Stuck in an FHA loan, but good income - options?
« Reply #2 on: November 16, 2012, 02:58:59 PM »
Build equity (20% needed) by paying down the loan, right?  I just want to be clear on what you're saying.

Would it be smart then to bring our 401k contribution down only to the point where our companies match (4%), then everything else goes towards the home loan?

JohnGalt

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Re: Stuck in an FHA loan, but good income - options?
« Reply #3 on: November 16, 2012, 03:24:12 PM »
At your income levels - I think you'll want to defer taxes as much as possible, so I would even suggest increasing your 401k contributions.  If you're at all serious about cutting down expenses, you should be saving some serious cash every month in addition to the 401k and roth contributions so it wouldn't take long to get the ~$40k you need to get 20% equity and refinance.  You could also consider a 401k loan to help you get there. 

I was able to refinance out of a 3% down FHA w/ PMI and into a traditional mortgage after being in my house for 18 months through a combination of bringing more cash at refinance and improvements/renovations I did in the first year I was there raising the value.

EJ

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Re: Stuck in an FHA loan, but good income - options?
« Reply #4 on: November 17, 2012, 06:23:53 AM »
There are also some 90/10 products with lender paid pmi. You'll sacrifice the rate a bit but can still likely get a 30 yr for under 4%. Check with a local bank - ive found they have the best options for "non conventional" conventional mortgages. Eliminate that PMI as fast as you can even if you have to bring some money to get down to 10% equity. $215/mo can be put to MUCH better use elsewhere.

TomTX

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Re: Stuck in an FHA loan, but good income - options?
« Reply #5 on: November 17, 2012, 12:08:12 PM »
With that much money coming in?

Pay off the mortgage. Should only take 3-4 years, less if you really buckle down.

grantmeaname

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Re: Stuck in an FHA loan, but good income - options?
« Reply #6 on: November 17, 2012, 12:17:25 PM »
Don't you have to wait five years for an FHA loan no matter what? Or are we talking about paying it down to 80%LTV and refinancing here?

Captain and Mrs Slow

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Re: Stuck in an FHA loan, but good income - options?
« Reply #7 on: November 18, 2012, 10:15:40 AM »

Everything else seems to be in order.. We dont go out to eat much, no expensive hobbies, no large amount of shopping, good income, high MPG car (mine is a $5000 honda insight that gets 60mpg on my daily commute!) etc. 


off topic a wee bit but I had to admit I didn't believe that number at first, seemed way to high, after all mine is a diesel and I'm only getting 54=56 mpg (British). But a quick peak of the EPA estimate is 50 mpg, quite impressive for a gas engine. Maybe I need to work harder to get mine higher.

cbr shadow

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Re: Stuck in an FHA loan, but good income - options?
« Reply #8 on: November 20, 2012, 12:50:51 PM »
Yeah I took a 800 mile trip in the Insight last weekend and averaged 70mpg..  There was a 50 mile stretch where I got behind a car carrier where I got 94mpg average!

Matt F

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Re: Stuck in an FHA loan, but good income - options?
« Reply #9 on: November 21, 2012, 10:35:28 AM »
I could be wrong about this, but I am pretty sure if it is an FHA loan with a 30yr payoff, you have to keep the PMI for 5 years, even if you get an appraisal or pay down the loan.  I think the appraisal option is only for traditional loans, not FHA loans, so just look into that with your lender first.

James

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Re: Stuck in an FHA loan, but good income - options?
« Reply #10 on: November 21, 2012, 11:25:39 AM »
Like others have said, save up 20% of value asap, doesn't matter if the money is going toward the current mortgage or going in savings.  Once you have 20% of value you can get a conventional mortgage and pay off HSA.  You can't know what you will need exactly until you get an appraisal, so when you get close start talking to banks and get an appraisal, should be able to do that in a matter of months at your income.

kudy

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Re: Stuck in an FHA loan, but good income - options?
« Reply #11 on: November 21, 2012, 12:46:23 PM »
I am in the middle of remedying the same scenario... doing a refinance for low closing costs - you can't get out of the PMI without a new loan.