Long story short, the agent is my FIL (and he is an idiot that missed stuff on our selling contract that cost me over 11k in furniture and appliances, but that’s also on me for missing it, and it’s another story) and he helped us get our first home 4 years ago. We invested about 40k into it and were going to invest probably another 50 to remodel the things we wanted. However he suggested a new customizable build that’s one subdivision over where we live. Very customizable, we could get exactly what we wanted and we could take the equity out of our home plus what we had saved up and it would be enough to start the construction. (The builder was asking for 77k in earnest money because of the customization options.). This is exactly what we planned for as our forever home. This is it. This is our dream home. We agreed, sold our home, gave them the earnest money, part of what I liked about the new build is that I was not going to have to pay Taxes the first year and that was going to be nice to save a bit for emergency fund etc. My FIL knew we were doing only about 11% down total almost right off the bat. I knew about the PMI but was thinking I’ll just buy it out up front now, 5 months later he tells me that we’ll most likely go FHA and I’ll have to pay taxes the first year. I’m def upset, but here’s my questions. My credit is 710-740 depending on which bureau we look at and I’m hoping to improve it some more before the house is ready early next year. Is it worth: A. Trying to buy out PMI up front (this is our forever home). B. Wait until LTV is 80% (could take ages, especially if we’re in a bubble now) C. Take out a second mortgage to put down 20% loan, avoid FHA, avoid taxes and avoid PMI. Then maybe refi them both together down the road. Will appreciate the advice. The taxes are not a HUGE deal, but It’s something I didn’t count on and it’s pissing me off a little bit because he knew all of this months ago and I don’t like being surprised.
Take the PMI and adjust it as soon as you get over 20% equity. Check with your bank to make sure you can do that. It has worked at the banks I have worked with.
With 11% down, FHA PMI will not go away for 11 years. Don’t go FHA if the plan is to remove PMI as soon as you hit the 20% mark.
While taxes are calculated on the previous year, you will only have to pay the prorated amount at closing. These estimates, especially on a new build, will be exponentially higher once the house is sold because you’re no longer paying taxes on just the property like the builder did. This is a HUGE added expense; expect it to double if not triple. He should have warned you about this.
Is your agent also your loan officer? 10%+ down seems odd for FHA; no matter what kind of loan you have, it doesn’t equal ‘avoiding taxes’. The cost of a 2nd loan is likely higher/more monthly than PMI would be. You should talk to a different loan officer. One who can give you your real options, explain each type of loan and the pros/cons of each type of loan, and give you a side by side comparison so you can see the difference in the monthly payment.
Sounds like you need a new agent. Your FIL is not looking out for your best interests. For a forever home, I’d go conventional with PMI rather than FHA - you can drop PMI once you hit 80% LTV. Second mortgages often have higher rates and less favorable terms. Avoid FHA if you can qualify for conventional; the mortgage insurance never goes away unless you refinance.
Why are you letting your FIL handle your finances? While dual licensing in IL is legal, as a broker I think it’s a terrible idea for a broker to originate loans on his own sales, not the least of which is the liability.