FHA vs Conventional

[SilverBerries]

Hey,

I have a quick question. I've read thru a ton of posts, but I haven't seen this answered.

Conventional loans - if your downpayment is 20% + there is no PMI. Period.

FHA - traditionally, folks put down 3.5%, which requires PMI and an upfront PMI payment. What if you put 20% down? Is there still PMI? Do you still have an upfront PMI payment? If so, is the reason because they don't want/need folks who can put 20% down to finance using FHA? Just a little confused about the choices available.

Thanks!

SB

[kc0039]

FHA loans always charge an UFMIP (Up front mortgage insurance premium) which is 1.75% of the base loan amount. Mortgage insurance will be there for 10 years then drop off if you put 10% or more for an FHA loan.

[StartingOver10]

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@SilverBerries wrote:

Hey,

I have a quick question. I've read thru a ton of posts, but I haven't seen this answered.

Conventional loans - if your downpayment is 20% + there is no PMI. Period.

FHA - traditionally, folks put down 3.5%, which requires PMI and an upfront PMI payment. What if you put 20% down? Is there still PMI? Do you still have an upfront PMI payment? If so, is the reason because they don't want/need folks who can put 20% down to finance using FHA? Just a little confused about the choices available.

Thanks!

SB

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The loan is insured in the case of default by the buyer (FHA loan).  The insurance is known as MIP (mortgage insurance premium). And yes, there are two mortgage insurance calculations as pointed out above UFMIP and monthly.  You do get a benefit if you put down more than 10% on the original purchase so your monthly MIP drops off after 11 years (I could be wrong - it might be 10 years).  

The whole point was to give people an opportunity to buy with low down payments and to induce the lender into doing the loan, the loan is insured if the borrower defaults.

There are other benefits to an FHA mortgage - higher ratios are allowed for both the front end and the back end. This helps especially if the borrower is low income. 

There are other benefits to FHA having nothing to do with HH income, especially now.  Past derogatories are more easily forgiven with an FHA type loan over a conventional loan (thinking of f/c's and bk's here).  

There are some restrictions. Not income per se, but loan limits. You would need to check your county to see if the loan limit is greater than what you need or not. 

[VALoanMaster]

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@SilverBerries wrote:

Hey,

I have a quick question. I've read thru a ton of posts, but I haven't seen this answered.

Conventional loans - if your downpayment is 20% + there is no PMI. Period.

FHA - traditionally, folks put down 3.5%, which requires PMI and an upfront PMI payment. What if you put 20% down? Is there still PMI? Do you still have an upfront PMI payment? If so, is the reason because they don't want/need folks who can put 20% down to finance using FHA? Just a little confused about the choices available.

Thanks!

SB

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Hi SilverBerries,

Yes, if you put 20% down on a conventional loan, you're not required to have PMI.

On FHA, you will always have to pay MI which includes an upfront premium of 1.75% which is financed into the loan & the annual MI which is broken down to a monthly payment. There are a couple of big differences with FHA depending on how much money you put down. If you put less than 10% down, the MI is for the life of the loan & it will be  .85% of the loan amount but if you put 10% or more down, the MI goes down to .80% & it will drop off after 11 years.

As far as "why" FHA is set up this way, it's because FHA has to cover all of their losses for the life of the loan. 

[SilverBerries]

Thanks for the responses. Just trying to get a clear handle on the differences. I want to make sure that I'm getting the best financial packet possible - and I found myself with two or three questions that I just couldn't find the answers to.

Thank you, all!

SB