Carolina.

Q: My wife and I are looking at buying our first home and are trying to figure out which mortgage product is best for us. We decided that we should get a pre-approval before we started seriously looking at several houses. My wife called a broker and expressed to her that we would prefer to not put much down: the broker immediately started talking to her about an FHA loan and sent over a Good Faith Estimate (after pulling our credit report and saying that our credit was great and salary was good) with numbers that look like that's what they were based on. I did some research online and, from what I could tell, an FHA loan seems to be overall *much* more expensive over the life of a loan (as compared to some other loan product where you put 3-5% down if it is an option). We *could* put 3-5% down and I'm starting to think that getting an FHA loan would be a big mistake at this point if there was possibly another mortgage product we could use. By the way, we are looking at a mortgage between 150-200K and are in North Carolina. I'm thinking about contacting a few other brokers to get a range of advice. Any suggest?

A: If your credit is excellent, get a 97-100% conventional mortgage offered by one of hundreds of lenders out there (such as myself). Going FHA is lazy for the broker you are using. FHA loans are somewhat expensive. The government backs them so that people that could not otherwise get a loan can get into a house. All the extra government paperwork and related inspections add to the cost. If you only put down 3% to 5%, you are going to have to pay mortgage insurance. That is just like flushing $100 a month down the crapper for 7 to 10 years. You may be better served looking for a less expensive starter house that you can more easily afford, or wait until you have at least 10% to put down. At 10%, you have options for mortgage insurance.

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