Help! Confused FHA vs Convention loan terms and rate. Which way to go?!

[Anonymous]

So I finally submitted my paperwork, had credit pull and i'm surprised at the loan terms presented. I was initially gangho about going with 97 conventional vs FHA. Just got the prelim loan estimates from my LO and im surprised at the numbers!

FHA 30 year fixed - Loan amount $422,211.63 (including, PMI) 

Interest 3.875%, APR 4.861%, 3.5% down. Funds needed to close $27,090.66, with an UFMIP of $ 7, 261.63 Total Estimated monthly payments-$2,646.92

97 Conventional- 30 year fixed- Loan amount- $417,000

Interest 4.250%, APR 5.123%, 3% down, Funds needed to close $25,089.15, NO UFMIP. Total Estimated monthly payments-$2,862.72

The monthly PMI for FHA is $291.52 whiles 97 conventional is $441.33

The monthly difference for total mortgage is $215.8

I am confused which route to go! 

The 97 conventional that high PMI will drop off at <80 LTV but i'll have to carry the PMI on the life if I go FHA. 

As it stands now this is a home i'll be in >10years  so FHA means $77,688 PMI over life of loan. Whereas 97 con will be $58,255. Assuming i only pay the monthly Principla and get to LTV<80 at 11 years. 

What do y'all think. 

These numbers wer with a midscore of 711. So if I can get my midscore up which it should be by close in 6 months greater than 740 i assume the terms will be better on the conventional side.

All input will be greatly appreciated.

[Anonymous]

The 97% conventional is very expensive due to its risk. I would try to raise your credit score, save 5% down, and go conventional if at all possible.

[Lemmus]

...dpeezy has the best answer of course

...but if thats not a viable option for you, there is always going fha with the plan to refinance conventional when LTV <80% and your credit is better, getting rid of the pmi 

...that has rate risks of course ...I'm old enought to remember Carter and 17% mortgages 

...one thing I'm not sure of is whether conventional pmi release is based on the original home value or changes as the home's value increases/decreases ...if it changes with an increasing home value, then conventional looks even better assuming the long term trend in home value continues to rise ...hth

[Anonymous]

@dpeezy thank you the response!

I can save for conventional if I get the builder to give me more towards closing costs and live on a really tight budget for a while, but will that make a significant difference. I will also have no reserves to show! But that's assuming that I need to. As it stands now  the approval did not say whether i need them or not. Just the amount and the two estimates I asked for but As it stands now the FHA is not an option as the LO had previously stated because she did not account for the local limit whivh i 379,500 or something like that. So my options are to but a little less house and go FHA, work to get the mid credit score >740, which to be honest i'm also scared of because I am selling my car and will be dropping 1 of 2 loans on my credit report. People say that the cs drops when you loose a monthly payment tradeline but i'm hoping I can gain those numbers back by paying down my credit card debt.

I'm really torn now.

[Anonymous]

@lemmus I dunno the answer to that. I am a little skittish now because I dunno whether to go full steam ahead or wait. Depending on what my required reserves are i might be able to go conventional 5% down. I just emailed her to see what i will be required to show apartment from funds to close to actually close. She offered to enroll me in DHI home owners clud to help bring up my numbers.

[Anonymous]

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@Lemmus wrote:

...dpeezy has the best answer of course

...but if thats not a viable option for you, there is always going fha with the plan to refinance conventional when LTV <80% and your credit is better, getting rid of the pmi 

...that has rate risks of course ...I'm old enought to remember Carter and 17% mortgages 

...one thing I'm not sure of is whether conventional pmi release is based on the original home value or changes as the home's value increases/decreases ...if it changes with an increasing home value, then conventional looks even better assuming the long term trend in home value continues to rise ...hth

---

For the sake of PMI, equity is based on the original value, not current market value. When requesting PMI removal at 80%, some lenders require an appraisal to ensure your home value hasn't decreased. Technically, the only time PMI must be removed is when the loan is scheduled to reach 78% LTV based on the original amortization schedule, regardless of extra principal payments.

The only way to guarantee PMI removal at 80% LTV or with early principal payments is to refinance.

Edit: With that being said, often lenders are willing to work with you once you reach 80%.

[Anonymous]

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@Anonymous wrote:

@Anonymous thank you the response!

I can save for conventional if I get the builder to give me more towards closing costs and live on a really tight budget for a while, but will that make a significant difference. I will also have no reserves to show! But that's assuming that I need to. As it stands now  the approval did not say whether i need them or not. Just the amount and the two estimates I asked for but As it stands now the FHA is not an option as the LO had previously stated because she did not account for the local limit whivh i 379,500 or something like that. So my options are to but a little less house and go FHA, work to get the mid credit score >740, which to be honest i'm also scared of because I am selling my car and will be dropping 1 of 2 loans on my credit report. People say that the cs drops when you loose a monthly payment tradeline but i'm hoping I can gain those numbers back by paying down my credit card debt.

I'm really torn now.

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No problem. If you have any other installment loans/debt, losing the car wont hurt you much. If your CC utilization percentage is above 30% or so, paying that down should have a much bigger impact than losing the car loan.

[Lemmus]

...you know what the options are now ...if it were me, I'd think real hard before putting myself in a financial straight-jacket ...too many things can and do go wrong ...hth

[Lemmus]

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@Anonymous wrote:

For the sake of PMI, equity is based on the original value, not current market value. When requesting PMI removal at 80%, some lenders require an appraisal to ensure your home value hasn't decreased. Technically, the only time PMI must be removed is when the loan is scheduled to reach 78% LTV based on the original amortization schedule, regardless of extra principal payments.

The only way to guarantee PMI removal at 80% LTV or with early principal payments is to refinance.

Edit: With that being said, often lenders are willing to work with you once you reach 80%.

---

...thank you dpeezy ...exactly what I was looking for 

[Anonymous]

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@Lemmus wrote:

...you know what the options are now ...if it were me, I'd think real hard before putting myself in a financial straight-jacket ...too many things can and do go wrong ...hth

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Yikes that is scary! i'm thinking about it really hard trying to weigh my options. But I dunno if i have that many at this point. I mean the differnce of $215.8 won't kill me if it means I get into my dream home quicker. I'll be getting a productivity bonus of at least 10% after my first year in this new position so that'll help defer some of the cost. In the meantime I have picked up some weekend hours to help see if I can go 5% conventional by closing time.  Who needs 6 months worth of saturdays  to get to a life a life goal.