Ask The Expert
Ask The Expert
Is My Community Mortgage a better program than FHA?
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.
