3.5% FHA vs Conventional 5%

[Cody Cavenaugh]

What are the pros and cons of the FHA 3.5% loan versus the conventional 5% loan? I have good credit, and ideally want the lowest payment per month possible. Planning on doing a 30 year

[Jay Hurst]

Assuming you have good credit and reasonably low debt to income ratio the FHA loan will more expensive in the long term then the conventional. FHA loans require both monthly and upfront mortgage insurance premium. The upfront MI is 1.75% of the loan amount. You can roll that amount into the loan but it is still strips equity. You will also have a monthly mortgage insurance that is .85 of the loan amount. That would be 141.67 a month on a 200k loan amount. A conventional loan MI would be closer to 50 bucks a month on the same 200k loan amount. Finally, the FHA monthly mortgage insurance is there for the life of the loan, where the conventional MI can be dropped once you get to 78% loan to value.

Long story short, if you can qualify for a conventional loan with credit over 680 or so it is almost always better then FHA. if you have lower credit scores FHA might be better.