Which loan should I choose?

10 Replies

Hello there I have a few questions and thought I'd ask around before committing to any specific loan. I am getting ready (3-6months) to make my first home purchase. I am tired of renting houses mainly because I am not getting any financially better while I do so. I've decided that I want to purchase a house live in it for a couple years (up to 3) and rent it out while I buy another. I have been looking in the area I want to purchase in and have found some suitable houses. Now I'm trying to decide what loan to pick. 

I dont want to make much of a downpayment whatsoever and I'd like to keep my rate low. I am a reservist in the Marine Corps and am halfway through my 6 years so I will be able to use my va loan at the end of my term. In the meantime while I dont have it though I fired my best bet would be an adjustable rate mortgage, because by the time it does adjust (3years most likely) I can refinance it into a va loan. I also looked at an FHA loan because they have low rates but I'm not sure it would would matter because the extra insurance would make the payment as high as a higher rate.

Some info you might need:

The house will be in Spring Valley Lake, CA

My Credit Score is 702, 698, and 695

My debt/income is approximately 22.5%

I am a first time home buyer and I am Military

I have received a few rate quotes from my bank (Navy Federal) for a 3/5 arm at 4.75% and an FHA loan at 4%.

The house will cost about 200,000 at least that is as much as I'd like to spend.

Devin Welcome to BP!! I don't know that I can give you complete guidance on what to do. However here are a couple of suggestions/thoughts.

1. The VA loan will require that you live in the house for at least 2 years after the start of the loan. If you do the ARM then refi to a VA loan after 3 years then you will have to live in the house for another 2 years. If you start with a different loan on the first house then you can use the VA to purchase your next primary in 3 years.

2. Check out USAA. They have great insurance and banking services for military personal.  I have been a member for years and love them. I have mortgages and insurance through them for my primary and rental.

please don't use USAA or NFCU for a loan, they are not competitive at all in today's market. Use an online lender as that will give you by far the best rates regardless of what mortgage option you choose. If you need a recommendation send me a PM. 

Run the numbers on the FHA with PMI versus the arm. You didn't mention the down payment that is associated with the arm, what is it? Are there any local government programs you could take advantage of as a first time homebuyer? Conventional will be your cheapest bet for rates but will take the most out of your pocket. I hate giving away the PMI with an FHA but that will get you a house for little down. Too bad you can't use the VA, great program for no money down houses. However, you can use that on the next one.

Yea I've been looking online at rates and they only look so much better but I figured it was just to get my attention. For instance Sebionic Financial a lender I've never heard of to be honest gave me a 4.0% rate. That would be much better but I wasn't sure about using a lender I can't confront or communicate with up front. However I wouldn't mind using them if they're trustworthy.

@Devin Cross  Both FHA and VA require you occupy the property for at least 1 year (not 2yrs). You can use the FHA loan, make a 10% down (instead of the min 3.5%) and the MI will drop of in 11 yrs. So you will be at about the same cost as a traditional mortgage for 11 yrs and then you get the kicker of the low FHA rate and no MI.

The rates you quoted from NFCU are pathetic. My FHA and VA rates are in the mid-high 3, and that's for a 30 yr fixed. Find a different lender.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

Agree with @Upen Patel above on the time frame required to dwell in your owner occupied house with a VA loan. We agreed to 1 year when we bought our current house with a VA mortgage.

Just to add another aspect not yet mentioned above, you can go up to four units. We've purchased over two dozen houses traditionally while we have been in the military, and are just recently (at 23 years in service) using one VA entitlement. We were mil to mil so we have another VA to use once our year ticks over. I wanted to use up all the other additional resources first.

Navy federal will do 100% loans and at least in our case they gave us $1000 after closing. Purchased this house a year Ago at 3.5% fixed @30 year. Our now rental was also purchased from navy fed 100% financing 3 years ago 4.2% @30 year fixed. They will work well for your strategy, but not when you go to buy straight rentals. They like 15 year terms and 25% down for investment properties. Buy, live 2 years, rent, repeat and you can keep using them.