![]() ![]() Clarissa's private mortgage insurance premium will also be higher because of her FICO score - 1.37 percent per year for a 95 percent loan. With five percent down, she can't cover this charge, but can get a "no-cost" loan at a higher rate instead. Key Factors in the FHA/Conventional Decision: Clarissa's credit history is minimal and her FICO is a modest 638.Conventional lenders will add 3.25 points in risk-based surcharges to her closing costs.She expects to keep this home for three-to-five years. Buyer's Story: Clarissa, 25, is moving to take a new job and has saved $10,000 for a house in the $200,000 range.Now let's look at a situation where it's unclear whether an FHA or Conventional loan is the right choice. That's not the case for private mortgage insurance where it is cancelled when the home equity reaches a certain point. Also, FHA mortgage insurance applies for the life of the loan. This is important because he plans to keep the home for the entire term of the loan.īecause of his credit score and down payment, Jason's upfront cost, monthly payment, and cost over the life of the loan are all lower with the conventional mortgage. In addition, FHA charges MIP for the entire term, while private mortgage insurance eventually drops off conventional loans. Annual mortgage insurance is lower for the conventional loan. ![]() Because of this, both loans have the same rate and amount. Is FHA or Conventional the Right Choice? Because Jason can pay his upfront charges out-of-pocket, he won't require seller concessions, and he won't need to increase his loan amount or interest rate to cover the closing costs.Jason has $25,000 saved and is putting $20,000 down, so he can pay either upfront charge. FHA loans carry a 1.75 percent upfront MIP regardless of the borrower's credit score. Conventional surcharges are 1.25 percent for borrowers in that range. Key Factors in the FHA/Conventional Decision: Jason's FICO score is a respectable 699.He expects keep the property "forever," turning it into a rental someday. ![]() ![]()
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