Should I do a FHA or conventional mortgage. Which is better?

Asked by Anna Lewandowska, Stamford, CT Tue Oct 25, 2011

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Richard Breglia’s answer
Richard Bre…, Agent, GREENWICH, CT
Tue Oct 25, 2011
Conventional loans in Connecticut require a minimum of 10% down. You can qualify for a FHA loan with only 3.5% down. If you are asking what is the better rate? Coneventional loans actually have a higher interest rate than FHA loans. The difference is that on conventional loans you are not required to pay PMI (private mortgage insurance). So you should figure out which offers the lowest monthly payment.

Get a quote on a conventional mortgage and FHA mortgage and remember to use the same loan amount. Then figure out what the monthly payments are on each. Calculate the difference of the monthly payments. After calculating the difference in monthly payment add the PMI amount to the FHA monthly payment and determine which mortgage payment is lower.

One more thing to remember is that FHA also charges a upfront Mortgage Insurance Premium for using FHA.
If the FHA monthly payment is lower then the conventional payment even after adding the monthly PMI then that's great. The last step is to divide it by the cost of the upfront Mortgage Insurance Fee. This will determine how many months it will take to pay back the upfront fee that FHA charges. After you determine this estimate how long you plan on living in this home and if this makes sense to achieve your goals. Most people move every 5-7 years on average.
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2 votes
David Carr, Agent, North Haven, CT
Sat Jan 14, 2012
If your purcahse is < 385000 FHA is the best price
0 votes
Christopher…, Agent, Tarrytown, NY
Wed Oct 26, 2011
Hi Anna, This will depend on your financial and credit situation. The FHA is more flexible then conventional. Not knowing your situation, it's best to contact a mortgage proefessional so they can assess your situation and guide you accordingly.

Christopher Pagli
Licensed Associate Broker
Accredited Buyer Representative
GREEN Designated Agent
William Raveis Legends Realty Group
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0 votes
Natale Terra…, , Newington, CT
Wed Oct 26, 2011

First to best answer your question, knowing your credit score ( assuming you do) would make a big difference in which way to go as well as knowing how much cash on hand or gift money available.

FHA does have up front mortgage insurance of 1% and a monthly mi factor of 1.15% for loans over 95% loan to value and 1.10% for loans under 95% LTV. They do allow for higher debt to income ratios and are a bit more flexible with underwriting giudlines.

A Conventional mortgage can be cheaper depending on your credit score and can allow you to put down as little as a 5% downpayment. You can also buy out the monthly mortgage insurance and save a bundle of money over the life of the monthly mortgage insurance premiums. This can be paid out of pocket or with a seller credit. This is called a single premium payment mortgage insurance and is the best way to go if you qualify for it.

You were asking on another thread if paying a point makes sense, buying out the mortgage insurance premium makes most sense with the money and if you still have money leftover then find out how much money it will cost (how many points you will have to pay) and then figure out how long it will take you to recover from the cost. If it takes three- four years and you know you will stay put for a while then it is worth it. If you plan on moving up to a bigger home or not staying at the home much longer than that, it is a bad move.

I hope this helps.
0 votes
Robert Chome…, , San Diego, CA
Tue Oct 25, 2011
-no up front MI and lower monthly MI in most cases
-stricter credit and debt ratio qualifying guidelines
-slightly higher rates than FHA

-up front MI and higher monthly MI in most cases
-slightly lower rates than conventional
-easier credit and debt ratio qualifying guidelines
-ability to go 3.5% down on 2-4 units
-allowed to get 100% down payment as a gift
-non-occupant co-borrowers allowed with 3.5% down
0 votes
Ken D'Ademo, Agent, Milford, CT
Tue Oct 25, 2011
The answer to your question would be your preference. FHA has guidelines that may make you unqualified, depending on the size of the loan. However, if you do qualify, FHA has great rates, your lender could provide you with details, and it would be advantageous to get the advice of a tax accountant. Have you considered a 15 year mortgage? In the long run, you will save on the interest, but if you do 30 year, you can pay down your loan by sending in principle payment when you can. Even a hundred a quarter will add up over time. There are so many choices for those with good credit, and stability. I know this does not directly answer your question, but should give you more information in what to look for and to ask your lender. Best of Luck. Please note, I am also a licensed REALTOR in CT so I have first hand knowledge of what CT offers. Ken D.
0 votes
Ron Thomas, Agent, Fresno, CA
Tue Oct 25, 2011
This like asking a bunch of people;
Which is better, an apple or an orange?

You need to sit down with a Mortgage Agent and do two sets of numbers, look at the GFE for both, and decide:
There is simply too much information needed.

Good luck and may God bless
0 votes
Seth Captain, Agent, Chicago, IL
Tue Oct 25, 2011
You are going to need a lot more info here, i.e. how much do you have in savings, how much work do you want to do the home, what are you normal investments for your cash reserves, would you be willing to leave Connecticut if Joe Lieberman became governor.

In general, FHA lets you put 3.5% down. Conventional might allow you to put 5% down, but many loans will be at least 10% and upwards of 20%. Conventional loans have a bit better rate and less fees. It's really a numbers game and it depends on your situation. If you don't have a lot of cash, or you need money for rehab, then FHA will usually be better.

There is a chance you will also need the money to donate to Joe Lieberman's opponent, which would also favor going FHA
0 votes
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