FHA vs. Conventional Financing

This is a question I receive often when talking about financing a mortgage and this is a portion of an email I received last week outlining the differences between FHA and Conventional financing.  Even though the minimum down payment for an FHA loan is 3.5% versus 5% with a conventional loan, the outcome might surprise you.

—email—

This week we wanted to compare FHA vs. 5% Down Conventional financing. The
mortgage market continues to develop and react to the new normal. For this
reason, we felt it was important to highlight why we might recommend a
conventional loan rather than the FHA program.  More FHA changes are
currently proposed so the disparity may become more dramatic.

Here is the payment comparison:

A $200,000 purchase financed with FHA would have a 3.25% rate today.

The same $200,000 purchase financed at 95% would have a  3.5% rate today.

However the mortgage insurance for the FHA loans has substantially increased
over the past few years. The monthly premium in this example would be about
$201 for FHA and $107 for the conventional loan. Therefore, we would be able
to save the borrower almost $100 a month by using the conventional loan at
the higher rate. Please note there are many instances where FHA is still
beneficial. Lower credit scores, cosigners, gift funds, ratios and
assumability of the loan are a few of the FHA advantages.

Jason Peifer

Sales Manager

CitiBank, N.A.

—email—