Home Buying in 22311>Question Details

M, Home Buyer in Alexandria, VA

What's better: FHA Insured Fixed or Conventional Fixed with PMI?

Asked by M, Alexandria, VA Fri Aug 22, 2008

I am a first time buyer getting a 30 years fixed interest loan with 3% downpayment and 3% seller's contribution to closing costs. I qualify for and have to choose from 2 loans: FHA Insured Fixed or Conventional Fixed with PMI. The interest rate is the same for both. The montlhy payments are approximately the same on both, but I need to know if there are any benefits to going with FHA especially in this bad economic environment. FHA loan means paying a fee (upfront MIP). In my mind the downside of going with FHA loan is that you have to pay the mortgage insurance for 5 years while you can stop paying PMI when you reach 20% equity in your home. I understand conventional is for applicants with good credit and employment history while FHA Insured Fixed offers the most liberal credit qualifying – and I don’t need that with high FICO. Thank you for sharing your expertise.

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4
Hey M, there's a lot more to it than that. Dependent on the lender, other variables have a variance in rate. There is no clear cut answer on which is better. Though generally FHA rates are better than Conventional. Some lenders also do LPMI (Lender Paid Mortgage Insurance), with an adjustment to rate, and this is usally better than the lower rate with PMI. Other factors to consider - What is your credit score, what is the loan amount, how long do you plan on staying in the house? You are correct in most of your post, FHA requires minimum of 5 yrs MI, whereas PMI you can drop off once you are under 80% LTV. Your lender or broker should really go over in detail your goals, and give you his/her professional expert advice. If you're not fully confident with them, give me a call and I'll get you a proper quote, rate, & term.
1 vote Thank Flag Link Fri Aug 22, 2008
The only reason to go with FHA is the RATE!!!
Go with the best rate - no matter where it is!!!
Why? Because without a sizeable downpayment you WILL pay MIP and/or MI/PMI REGARDLESS...
1 vote Thank Flag Link Fri Aug 22, 2008
M-
Since you are not paying your closing costs anyway, might I suggest an even more savvy approach. If your home is appraised at more than the purchase price, then after you close on the purchase, turn round and rate/term refi your loan. Lenders will not recognize home equity unless it is a refi. Since some of your rate is based on your loan-to-value as is your mortgage insurance rate, refinancing allows you to base those factors on your home's market value, not the purchase price.
Lenders like Flagstar only require one day on title for you to turn around and refi based on the home's appraised value. Anyway, just a thought.
Luke Allison
Flagstar Bank
828-777-8828
Luke.Allison@flagstar.com
0 votes Thank Flag Link Fri Aug 22, 2008
I like the MIP with FHA because in most cases you can wrap it right into the mortgage, and may be entitled to a refund when you sell the property.
Glenn
0 votes Thank Flag Link Fri Aug 22, 2008
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