Queens, NY · Member since 2016 · 58 posts · 7 votes
So my wife & I were looking to move to Long Island because we thought anything in NYC where we wanted to live was too expensive for us. We ended up finding a 2 family property where the numbers work. We have great credit,good income, no debt, but a low down payment. I know an FHA loan is a great loan to get you in the door, but the bank told us there would be an extra $10K to use the FHA loan and then refinancing down the road would cost another $10K. The bank also told us we need 10% down for a conventional loan for a 2 family. The most we can do is 5%.
Is it true you have to put 10% down on a conventional loan for a 2 family property ?
Queens, NY · Member since 2014 · 153 posts · 64 votes
10y
Pretty sure 10% down is the best you're going to do outside of FHA. Trust me I've been looking for a while. You shouldn't be afraid to do an FHA though. Yes the fees are expensive but most of them can be rolled into the loan and besides that's the cost you pay for putting so little down. HTH.
Queens, NY · Member since 2014 · 153 posts · 64 votes
10y
Pretty sure 10% down is the best you're going to do outside of FHA. Trust me I've been looking for a while. You shouldn't be afraid to do an FHA though. Yes the fees are expensive but most of them can be rolled into the loan and besides that's the cost you pay for putting so little down. HTH.
Boca Raton, FL · Member since 2014 · 16 posts · 7 votes
10y
Look into Wells Fargo now offering 3% down payment for first time buyers. It may be suitable and doing some research into it can't hurt. I just read some things on their offerings this week
Pretty sure 10% down is the best you're going to do outside of FHA. Trust me I've been looking for a while. You shouldn't be afraid to do an FHA though. Yes the fees are expensive but most of them can be rolled into the loan and besides that's the cost you pay for putting so little down. HTH.
It's not that we're afraid. You have to pay $10K to take out the loan. We plan on paying it down as fast as we could and refinancing in 5-7 years which is going to cost another $10k. I feel like its a lot of money to throw away just for taking out a loan.
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
10y
Luis Rodriguez the costs you are mentioning seem pretty arbitrary without context. These are simply $10,000 fees on either side of the transaction? Is the purchase-side fee a point? Pre-paid MI? Origination fee? Seems like there should be something identifiable about the fee itself....and that the same fee may or may not exist with another lender.
On the selling side, is this a pre-payment penalty?
A lot about your terms seem odd, but I don't know your market or the loan product you are using.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
10y
@Luis Rodriguez, Wells Fargo is also doing 3% loans. The problem is that "conforming" loans (conventional loans that can be sold to Fannie) have a cap of $417k and as you know there aren't many of those in NYC.
For FHA, there are higher limits in high-cost areas (like NYC) and the numbers increase with each unit in a property (up to 4). In Fairfield county for example, you can get an FHA loan on a 4plex for over $1mm.
I'd check around with some other banks. The FHA stuff this guy told you doesn't sound exactly right. Check the FHA site for limits in your area.
Queens, NY · Member since 2016 · 58 posts · 7 votes
10y
I'm not sure. I think its the up front insurance premium when you're dealing with an FHA loan. It's 1.75% of the loan so at $600k which is what we are looking to spend, its $10.5k. Sorry, I misspoke earlier, I forgot to mention why we would like to refinance. Once we get to 20% equity and we dont want to pay MIP, we would have to refinance which will cost another $10K. You can't just tell them to remove it like with a conventional loan.
@Luis Rodriguez, Wells Fargo is also doing 3% loans. The problem is that "conforming" loans (conventional loans that can be sold to Fannie) have a cap of $417k and as you know there aren't many of those in NYC.
For FHA, there are higher limits in high-cost areas (like NYC) and the numbers increase with each unit in a property (up to 4). In Fairfield county for example, you can get an FHA loan on a 4plex for over $1mm.
I'd check around with some other banks. The FHA stuff this guy told you doesn't sound exactly right. Check the FHA site for limits in your area.
Yeah, I just spoke to Wells Fargo. It was going well until I mentioned the price of the home. =(
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
10y
Luis Rodriguez now we are getting somewhere. I'm not a huge fan of the FHA product, burnt works for a lot of people.
Piecing it together....you can put 3.5% down for FHA, but you will have to pay 1.75% in upfront MI. That makes your cash outlay 5.25% (plus other closing fees), but only 3.5% is converted to equity.
There are 5% programs out there where all 5% will convert to equity as a true down payment. Again, not sure what's in your market, but ask around.
The interest rate on the FHA loan should be lower than a conventional rate, but you have to pay the MI on top of it. If the MI is 1% a year (I don't have the current figure), you need to add that to the rate. When I last calculated this out, the interest rate + MI rate was higher than what a typical conventional rate would be.
Both surcharges are the cost of putting low money down.
Note that MI is tax deductible, but only up to a certain AGI. Above a certain AGI, that MI just becomes money thrown into a hole.
Still not sure why it would cost $10,000 to get out of the loan.
Luis Rodriguez now we are getting somewhere. I'm not a huge fan of the FHA product, burnt works for a lot of people.
Piecing it together....you can put 3.5% down for FHA, but you will have to pay 1.75% in upfront MI. That makes your cash outlay 5.25% (plus other closing fees), but only 3.5% is converted to equity.
There are 5% programs out there where all 5% will convert to equity as a true down payment. Again, not sure what's in your market, but ask around.
The interest rate on the FHA loan should be lower than a conventional rate, but you have to pay the MI on top of it. If the MI is 1% a year (I don't have the current figure), you need to add that to the rate. When I last calculated this out, the interest rate + MI rate was higher than what a typical conventional rate would be.
Both surcharges are the cost of putting low money down.
Note that MI is tax deductible, but only up to a certain AGI. Above a certain AGI, that MI just becomes money thrown into a hole.
Still not sure why it would cost $10,000 to get out of the loan.
Closing costs/refinancing in NY is expensive. Since it's a 2 family, every other loan besides an FHA wants at least 10%. If it was a 1 family, even in the same price range, we'd be fine with 5%. I'll keep looking and hopefully I can find something.
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
10y
Luis Rodriguez sounds like this is a pretty decent opportunity then. You're paying a premium to be able to put so little down, but if you can't put this little down, you won't get the property at all.
The urgency to refinance will be greater with the expensive MI payment, but you will have PMI whether you go FHA or conventional at <20% down. So you'll want to refi either way, the cost to do that is high.
These all seem to be costs of doing business with limited capital in the NYC area. Beats doing nothing (which is what most people would do)!
If make sure you are with the bank/broker who is going to give you the best value with regards to fees and rates. Then, if the property remains "right" for you, pull the trigger!
Good luck!