I really need help here to anyone that can provide insight! Here is what I was sent:  

It is very confusing to me! 

- - - - - Email from my Realtor - - - - - 

"Hi Tim,

This lays out what it looks like to use that $7k credit to prepay the FHA Funding fee vs. use that money to buy down the rate, which might make more sense over the life of the loan. Amber and I are working toward a spreadsheet to show where the principal paydown and appreciation intersect at 79% LTV so you have an idea when you can obtain a new appraisal and get rid of the private mortgage insurance. Andy made it sound like there would be no PMI initially but, he meant only no FHA funding fee so, that caused me to dig deeper. You can pay points to buy the rate down and also use the $7k credit more wisely, after talking through this with Ryan, whom I've copied on this email. Please feel free to contact him anytime to understand this further.

We'll report back with where we think the sweet spot is in all of these options to maximize this deal for you.


Thank you,

Bryan"

- - - - - - - - - Forwarded Email - - - - - - - - - 

"Hello Bryan,

Thanks for reaching out, here is a breakdown of the ways we can do this for Tim. There are several scenarios and ways to go about this but I will detail them as we go. The bullet points are items that are pretty much locked in moving forward. The rest is as follows:


* Purchase price - $437,000
* Loan Amount - $421,705
* Loan Amount with Financed FHA Upfront Premium ($7,379) - $429,084
* Down Payment - $15,295


Loan Amount
Interest Rate
Principle & Interest
Private Mortgage Insurance (PMI)
Monthly Escrows - Taxes & Insurance
Total Payment (PITI)
Closing Costs & Pre-paid Expenses - Estimated
Seller Credit for Upfront PMI / Closing Costs & Pre-paid Expenses
Cash to Close - Estimated

1. $421,705 (NO FINANCED UPFRONT FUNDING FEE)
3.625%
$1,923
$299
$575
$2,797
$13,104
$7,000
$21,399

1. $429,084
3.625%
$1,957
$304
$575
$2,836
$5,725
$7,000
$15,295

1. $429,084
3.5%
$1,927
$304
$575
$2,806
$6,660
$7,000
$15,295

1. $429,084
3.25%
$1,867
$304
$575
$2,746
$8,849
$7,000
$17,144

1. $429,084
3.0 %
$1,809
$304
$575
$2,688
$12,792
$7,000
$21,087

So the major differences here is between option 1 and the rest of the options. FHA charges an upfront Mortgage Insurance Premium (MIP) of 1.75% of the loan amount but they allow this to be financed. As the offer is written, you would get this almost paid for in full by the sellers credit of $7,000. However, in options 2 through 5, when you finance that premium, you see the true difference in payment and Cash to Close. It's substantial because the upfront premium is so expensive. So if you were to amend the offer and have that credit go toward EITHER the FHA Mortgage Insurance Premium OR general closing costs and prepaid expenses, then we could finance the FHA MIP and use that $7,000 for closing costs and prepaid expenses. Then we could also look at buying the interest rate down to make your payment lower as well. Please note on options 2 & 3 that the cash to close doesn't change because the seller credit is more than the closing costs and prepaid expenses so you would have to bring your manditory 3.5% down payment. The remaining balance would be used as a principle reduction.

I know this is a TON of information to go over but it is important to know your options and what would be the best way to proceed with the loan. I am always available to go over this or any other information you would like to discuss. This is a good way to get a 4 unit property and FHA allows for only 3.5% down so that is great as well.

Should you have any questions, please reach out."