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for conventional, you will probably have to pay the collections. and your student loans still have to count as a part of your DTI
you will need to put the full amount down to go FHA and you will still have to pay PMI. However, you will still have to pmi with a conventional, and since you are under 680, your pmi rate will proably be high (higher than FHA). i'm sure your interest rate will higher with a conventional loan vs an FHA loan, and the amount financed will actually be higher (assuming you put 5% or 10% down). so, with conventional, you will have higher principle higher pmi and higher interest...but, you will have cash left in the bank. with fha, you will have a lower monthly mortgage payment, but no cash in the bank.
In the long run, FHA will probably be a better option for you....you just have to decide if you prefer cash now or are willing to start your savings over.
Thank you for your reply.. I have a feeling FHA will be easier to qualify for anyway so that is the way to go I think.
Another point to consider, Conventional PMI can and will be cancelled at 78% LTV. FHA Mortgage insurance for a loan greater than or equal to 90% LTV, the MI is for the term of the loan. If your down payment is more than 10% the MI is not cancelled until after the 11th year. You would want to consider this in determining which loan is cheaping in the long term. Of course, if you plan to be in the home less than 5 years, the may be irrelavant. Of course, If you are forced to make larger down payment to use FHA due to max loan amount, the same down payment on a conventional loan may be more beneficial since it will reduce the PMI rate and give you the possibility of dropping the PMI altogether with a few extra payments during the first few years of the loan. Just some things to consider.