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FHA with lifetime PMI or Conventional?

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JMMD
Frequent Contributor

FHA with lifetime PMI or Conventional?

We filed Chp. 7 in 2011 and were discharged in Feb 2012. FHA requires a 2 year wait for a mortgage and conventional 4 years. We have been working on rebuilding our credit in hopes of buying a home in the spring. However, because of the new FHA rules about paying PMI for the lifetime of the loan, we are trying to decide if we should go ahead and do that with 3.5% down, verses waiting until the 4 years are up and trying for a conventional with 5%-10% down? Unfortunately, because we would not have 20% down we would still have PMI for a while with conventional. I believe we would have a lower interest rate with FHA but I am not sure that makes up the difference of paying lifetime PMI verses a higher interest rate with conventional but only a five year PMI.  I am not sure if this would make financial sense, but what about buying through FHA now and refinancing with conventional in a couple of years?

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sr383
Regular Contributor

Re: FHA with lifetime PMI or Conventional?

I think it makes sense to go FHA, as soon as you can, because interest rates seem to be marching upward. If they stay the same (or only go up a little), you could do a conventional refinance and reduce or elminate PMI. If they escalate dramatically, you've insulated yourself from that, even if you're having to pay PMI for the life of the loan.

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JMMD
Frequent Contributor

Re: FHA with lifetime PMI or Conventional?


@sr383 wrote:

I think it makes sense to go FHA, as soon as you can, because interest rates seem to be marching upward. If they stay the same (or only go up a little), you could do a conventional refinance and reduce or elminate PMI. If they escalate dramatically, you've insulated yourself from that, even if you're having to pay PMI for the life of the loan.


Thanks for your reply. We really do want to buy now instead of wait, so I think we will plan on it for the spring with the plan to refinance if it makes sense down the road.

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