FHA vs Conventional Financing

There are many differences between a conventional mortgage loan and an FHA loan. Normally, when meeting with clients, I look at each borrower and help them understand the best loan for them. Recently FHA has lowered their monthly mortgage insurance premiums for the first time since 2015, so it’s important to understand why you may see more FHA financing.
Mortgage insurance (MI) is a premium paid by the borrower typically when the down payment is less than 20%. The difference between utilizing an FHA loan and a conventional loan is no matter the down payment, you will always have MI with FHA. You do not have to be a first-time buyer with FHA, you can have owned a home previously and still have an FHA loan.
If you have a higher credit score, your MI will be much lower each month with a Conventional loan. FHA also charges an upfront MI premium of 1.75% that is added to your mortgage balance, meaning that you will owe more than what you would with a conventional loan. With FHA, unless you put down more than 10%, you will also never be able to take off the mortgage insurance premium without doing a refinance of the rate. With a conventional loan, after two years and a good payment history, if you have 20% of equity, you can request to have the MI removed.
The rate on an FHA loan is typically lower than a conventional loan but the MI is lower for the Conventional loan.
There are other factors to consider on when we utilize FHA versus other loans, but having a professional that understands all of the different options and choices, gives you the best chance to finance your home with the least amount of costs at the lowest interest rates. Let’s chat about it! For more information please call 661-295-0555 or visit www.stressfreemortgage.com.