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Is My Community Mortgage a better program than FHA?

Posted by  on Aug 17, 2011
 

I assumed that to buy a home with little for a down payment that I'd have to use an FHA loan. But a couple of mortgage lenders have told me that a program called My Community Mortgage offers the best mortgage rates. Is this true?

In many cases, Fannie Mae's My Community Mortgage (or its Freddie Mac counterpart called HomePossible) may be less costly than an FHA loan. FHA's monthly insurance premiums has increased to between 1.1 and 1.15% of the loan balance (and that's in addition to the upfront mortgage insurance premiums of 1%). So, assuming that you want to buy a $100,000 home with FHA's minimum down payment of 3.5%, you're looking at the following costs:

Purchase price $100,000
Down payment at 3.5% $3,500
Upfront mortgage insurance premium of 1% $965
Loan amount: $97,465
Principal and Interest at 5% $523
Monthly mortgage insurance: $93
Total payment: $617

Compare this to My Community Mortgage:

Purchase price $100,000
Down payment at 3% $3,000
Upfront mortgage insurance premium $0
Loan amount: $97,000
Principal and Interest at 5% $521
Monthly mortgage insurance: $63
Total payment: $584

In addition to requiring less money up front and less each month, My Community Mortgage offers a few more advantages:

  • Up to 97% financing
  • No prior credit history is required
  • No minimum contribution from the buyer's own funds
  • Fixed- or adjustable-rate loans available with interest-only options
  • Loan terms up to 40 years

What's the catch? Well, My Community Mortgage does come with a few restrictions:

  • Your income cannot exceed certain limits (in most cases earn no more than the median annual income for your area)
  • You can't currently own any other property

When you compare mortgage rate quotes, it's smart to determine which loan--FHA or Community--will get you the best mortgage rates.



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