20% down on FHA loan

[neptunejcw]

Just a question but would it make more sense to go fha if you got 20% down to have the lower interest rate? I know conventional is a lil higher but not having MI with a lower rate would make sense wouldn't it?

[StartingOver10]

FHA charges mortgage insurance on all of their loans. Below is the table of the cost as it relates to the mortgage term and the LTV:

• 15-year loan, LTV more than 90 percent: 0.70 percent
• 15-year loan, LTV 90 percent or less: 0.45 percent
• 30-year loan, LTV more than 95 percent: 1.35 percent
• 30-year loan, LTV 95 percent or less: 1.3 percent

Even if you put down 20% you will have to pay mortgage insurance on a FHA loan, but not a conventional loan.

HOWEVER, if you do put down more than 10% down payment at the time the loan is originated you do not have to pay the mortgage insurance for the life of the loan - only the first 11 years. So from that perspective you will have a savings. You just need to calculate the difference to a conventional loan with no mortgage insurance is less or not.

[neptunejcw]

That's a newbie? Are you referring to a conventional loan or fha loan that you don't have to pay MI for 1st 11years? I thought the MI stayed the life of the loan if you went FHA unless you refinanced....

[neptunejcw]

I'm sorry i meant you don't have to pay after 11yrs

[StartingOver10]

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@neptunejcw wrote:
That's a newbie? Are you referring to a conventional loan or fha loan that you don't have to pay MI for 1st 11years? I thought the MI stayed the life of the loan if you went FHA unless you refinanced....

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These are the rules put in effect in 2013 for FHA loans.

You DO pay MI on an FHA loan for the first 11 years if your original LTV is less than 90% of the purchase price. But then you stop paying MI after 11 years.

If you get the traditional 3.5% down type FHA mortgage then yes, you have to pay for the life of the loan.

A lot of people don't realize this option is available for FHA (putting down more than 10% and saving all those mortgage insurance payment). 

For conventional if you put down 20%, you don't have to pay any MI.

[StartingOver10]

Here is a link for you:  http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory

The reference to the 1.75% in the article is referring to the UFMIP (Upfront MIP) paid at the time of closing. This is usually rolled into your loan amount, but you don't have to do that, you can pay it at closing if you chose to do so.

So FHA really has a mortgage insurance premium that is paid in two parts: 1) the UFMIP and 2) the monthly amount.

You can really help your monthly payment by borrowing a lower amount. Putting down more than 10% on your purchase will help reduce your MIP monthly payments tremendously + you will be able to drop the payment entirely after 11 years which is a good benefit to you too.

[ezdriver]

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@StartingOver10 wrote:

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@neptunejcw wrote:
That's a newbie? Are you referring to a conventional loan or fha loan that you don't have to pay MI for 1st 11years? I thought the MI stayed the life of the loan if you went FHA unless you refinanced....

---

These are the rules put in effect in 2013 for FHA loans.

You DO pay MI on an FHA loan for the first 11 years if your original LTV is less than 90% of the purchase price. But then you stop paying MI after 11 years.

If you get the traditional 3.5% down type FHA mortgage then yes, you have to pay for the life of the loan.

A lot of people don't realize this option is available for FHA (putting down more than 10% and saving all those mortgage insurance payment). 

For conventional if you put down 20%, you don't have to pay any MI.

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The guideline is TO 10% or MORE  and that is the main reason why I put down 10% on my FHA-financed purchase. I did not have another 10% to put down so I can either refi before 11 years and get rid of the MI or stop paying the monthly MI after 11 years. That was the best deal available to me so I am grateful.

[StartingOver10]

^^^I think it is a fantastic alternative to paying MI for the life of the loan, especially since FHA has a lower interest rate at the moment and easier qualifications than conventional if your mid-score is less than 680. 

**Thanks for the correction EZ - I meant to say the borrower has to put down 10%+ in order to have the MI drop after 11 years.