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Tags: FHA Mortgage Calculator, FHA vs Conventional, Loans for First Time Home Buyers
FHA vs Conventional – Up-front Costs
Both the 30 Year Fixed Conventional and FHA loan rates dropped even lower this week. These rates are now pressing against some of the best rates of all time, set almost exactly one year ago.
FHA vs. Conventional
We’re going to look at another comparison. We’ll focus on a 700 FICO score, 5% down payment, and we’re assuming a single-family residence. We’ve used a price of $300,000 for both examples.
Monthly Payment
In terms of monthly payment, the FHA mortgage nearly always is cheaper for the 700 FICO score borrower.
This is largely because the PMI is .94%. That should be read and referred to as a percentage. Since the FHA PMI is only .5% in this scenario, the conventional loan’s effective rate is roughly .3% higher. The Conventional PMI is .44% higher and the interest rate is .125% lower. Jump to the end of the article for the full data.
Tags: FHA Interest Rate, FHA Mortgage Calculator, FHA vs ConventionalFHA vs Conventional Revisited
This was a bummer. It was way back in August that I posted the last FHA vs Conventional comparison for a buyer with 5% down and a good, but not perfect, FICO score at 700.
I sat down yesterday to run the numbers again. It was November 1. The last post was August 27. We’ve seen the GDP jump. We’ve seen the Fed’s mortgage backed security purchase program begin to wane. We’ve seen housing numbers come in hot and housing supply dwindle.
The numbers were the same. The 30 Year Fixed Conforming was 5%. It was also 5% for the FHA interest rate.
Recap of the last FHA vs Conventional Comparison (see the prior post for the full numbers):
- Monthly Payment: FHA wins. Lower due to the lower monthly mortgage insurance component.
- Total Cost: The FHA is a worse option for about the first 24 months due to the up-front mortgage insurance cost. After that time, it outperforms the Conventional loan.
FHA vs Conforming Over 10 Years
There was one point that was not addressed well in the old post: The same FHA monthly mortgage insurance that is lower on a monthly basis is also permanent. Unlike PMI, it doesn’t go away at 80% loan-to-value (or 78% on a refinance transaction). The FHA “PMI” survives the life of the loan until it is either paid off over many years or paid off at once via a refinance.
A 95% loan reaches 80% loan-to-value just short of ten years. So, we’ve expanded the comparison from five years to ten.
Tags: FHA Interest Rate, FHA Mortgage Calculator, FHA vs Conventional