FHA vs Conventional - New PMI Rule and How Much Can I afford?

[Anonymous]

Went through my emails from my LO and here is what he said about the UFMIP:

With an FHA loan you have UFMIP (Upfront Mortgage Insurance Premium) of 1.75% of the base loan amount is added to the base loan amount thus increasing the total loan amount.  There is no UFMIP on a conventional loan.  Eventhough the FHA rate is lower you are borrowing more than with a conventional loan which is the reason for the monthly payment being lower with a conventional loan.  Additionally,  mortgage insurance remains for the life of the loan for FHA but will go away when the loan balance is equal to 80% of the value of the home in about 3 – 4 years thus further reducing the monthly payment, in this case by $81.     

I went from a FHA loan to a FHA Conventional loan with 5% downpayment.

[ezdriver]

It's FHA or conventional. There is no "FHA Conventional ". Just clarifying the use of these words to describe mortgage program types.

[Anonymous]

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@ezdriver wrote:

It's FHA or conventional. There is no "FHA Conventional ". Just clarifying the use of these words to describe mortgage program types.

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sorry...i went thru my docs and it states CalPLUS Conventional Loan...so initially it was FHA and now its CalPLUS...

[Anonymous]

Thank you for the detailed reply! If I'm putting 20% down would that mean that the loan is 80% of the value and there is no monthly payment other than the 1.75% upfront payment? 

[StartingOver10]

No. If you have an FHA loan you will have the 1.75% UFMIP and the monthly mip too. The advantage of putting down 10% or more is that the monthly MIP drops off after 11 years rather than staying for the life of the loan. This means you don't have to refi to get rid of the MIP. 

If you have a conventional loan and you put down 20%, then you do not pay any mortgage insurance at all. Not UFMIP and not monthly. 

[frugalQ]

Starting,

So even if you have 20% you still have to pay MIP monthly with FHA?

If that's the case, if you have 20% to put down, go conventional all of the way.

[StartingOver10]

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@frugalQ wrote:
Starting,

So even if you have 20% you still have to pay MIP monthly with FHA?

If that's the case, if you have 20% to put down, go conventional all of the way.

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Yes, that is the downside with FHA. However, the OP needs to figure out the difference in payment between conventional and FHA based on the OPs credit scores. If OPs mid score is above 680 then definitely go conventional. Below 680, they need to check the rates and costs because conventional mortgage rates and PMI get very expensive

[Anonymous]

At last check, I have scores in the high 700s but I'm doing the First Home Club, which provides about $7500 toward downpayment or closing costs of an FHA loan. I'm trying to figure out if I need to consider walkign away from the First Home Club grant and look at conventional loans due to the insurance situation. (Hate the thought of walking away from the 7.5K though) 

[frugalQ]

so, you will have to do a rough estimate of the difference in mortgage payment if you go conventional vs fha.  you will need to get an idea of what your interest rate would be for both programs.

you are putting 20% down regardless, correct?  why pay MIP you don't have to?  in the long run, you end up paying more than 7,500 by going FHA.   the only way i see this making sense is if your interest rate on a conventional mortgage is higher such that your mortgage is equal to the mortgage payment using FHA with MIP.  and with 20% down and a good credit score, i just don't see that happening.

seems like a no-brainer to me...but, it's your decision.

[Anonymous]

I'm hoping that if it's just the one-time MIP payment instead of a monthly thing with FHA, it won't be more than $7.5k and it would still make sense. But, at this stage, I don't think it would hurt to talk to a loan officer about a conventional loan as well.