Asked by Mel, Sunnyvale, CA • Wed Oct 26, 2011
I'm trying to do my homework and understand why FHA loans are not better than conforming loans. Lets say your house's price is X. Lest assume 80%*X > US$ 417K. You can go two ways:
A) Get a conforming loan: pay X - US$417K as a down payment and borrow the rest at, lets say, a 4.5% APR
B) Get a FHA loan: pay 20%* X and borrow the rest at, lets say, 4.125% APR 1% of PMI
Wouldn't you be better off going with (B) and getting the difference between the down payment of A and 20% *X and applying it to an investment that pays more than 1% of interest per year (which is reasonably easy to find) ?7
To be more concrete. Lets say that X = US$ 570K.
In (A), you'd be putting down US$ 153K (570K - 417K). Lets say that in (B) you put down 20% = 113K. The difference between the down payments here is of 40K. Assuming that you can make the $40K pay off more than 1% a year, isn't it smarter to go with the FHA ?
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