I had a private coaching call with one of my cashFLOW students last week, and she was frantic!
She was frustrated with getting a mortgage pre-approval.
Sis said she was tired af!
She had spoken to two different mortgage lenders.
One lender wasn’t responsive.
The other was advising her against using an FHA mortgage loan. The lender was pushing for a conventional mortgage instead.
Purchasing a multi family house with a conventional loan would mean at least a 10% down payment vs 3.5% with an FHA loan.
3.5% vs 10% is a HUGE difference when buying property in an expensive market – she plans to buy in NYC.
This would be a down payment difference of tens of thousands of dollars. 😫
My first question to her was – the WHY behind her lender’s advice to not do an FHA loan.
She shared that her lender said that a conventional loan is better because it is cheaper.
This is absolutely correct.
The mortgage insurance premium on an FHA loan is higher and will last the life of the loan. And an upfront MIP is also required.
So theoretically, an FHA loan seems costlier.
But “better” is subjective.
The lender never asked what my student’s priorities are. So the lender’s advice on “better” wasn’t relevant to what matters to her.
For one person, having a lower monthly payment may be a priority. In which case a conventional loan might be the better option if interest rates on both the FHA and Conventional are the same .
For someone else who doesn’t have a lot of cash on hand, a lower down payment might be the priority. In which case an FHA loan would be better because it offers the lowest down payment option on an owner occupied multi family purchase.
The lifetime PMI payments may be irrelevant for someone buying a cash flowing property that pays for itself. In which case an FHA loan would be just fine.
The point here is…
Your lender can and should tell you what your mortgage options are.
But ultimately the person who KNOWS what the best option for you is would be YOU.
Not your mortgage lender.
how do you determine what the best mortgage loan option is?
✅ Get written mortgage estimates
Ask your lender to give you a written estimate for both a conventional and FHA loan.
If you are looking at other loan types, get quotes on the two that you are most interested in.
Seeing the closing costs, payments, and interest in writing helps you to compare options objectively using numbers and data.
✅ Get mortgage loan estimates from at least three different lenders
FHA and Conventional loans make up the majority of loans originated in the US. But lenders also have other loan options at their disposal. Especially if they aren’t a big box bank.
Talk to at least three lenders from different types of institutions. That way you can get a variety of options from a variety of people.
Getting multiple estimates can also help you negotiate for better loan terms
✅ Always ask your mortgage lender WHY
If you don’t understand the reason you cannot do something that you thought you could, get clarity on why.
Keep digging and asking clarifying questions that get to the root of the issue until you understand what is happening.
If the lender isn’t explaining the situation in a way you understand OR worse.. they get annoyed when you ask questions, get another lender.
Lenders get paid a commission when you close on your loan. So if they aren’t willing to explain things to you, find a lender who will earn their commission.
Have you had a mortgage lender give you information that was contrary to what you thought to be true?
DM me on Instagram and let’s share stories!
I have had SEVERAL mortgage lenders try to sell me fake news. 😅
