FHA Vs. Conventional: Round 2.1

Today we are going to look at the mortgage insurance options with conventional loans. There are two basic options: borrower paid monthly and borrower paid single premium with no refund. The borrower paid monthly is the traditional approach to mortgage insurance. Usually one month is collected at closing and the premium is collected each month in the payment. The mortgage insurance must be paid until the loan to value is 80% or less. If you have questions about mortgage insurance please contact me.

The borrower single paid no refund mortgage insurance is a one-time payment for the life of the loan. There are no monthly payments and there is no refund.

Let's take a quick look at the two programs:

We will assume a $250,000.00 purchase amount with good credit and the single premium rate of 1.35%. One difference between FHA and Conventional is that the borrower is graded on the Conventional mortgage insurance. This grade is based on the credit score and there are 4 class grades.

                                    Monthly                 Upfront

Up front premium            N/A                   3375

Monthly                          114.58                N/A

Based on the two options; the breakeven point would be 30 months and then the upfront premium would be less expensive moving forward. Since most people will keep their homes longer than 30 months the upfront is typically a better deal.

Let's take a look at another chart to see the effects of credit scores and loan to value on the monthly premiums:

Loan to value  Coverage        760+        720-759        680-719        <680

97%                 35%                .81%        .88%             1.10%           N/A

95%                 30%                .59%        .67%               .94%           1.2%

90%                 25%                .44%        .49%               .62%             .76%

85%                 12%                .28%        .32%               .38%             .44%

As you can see credit scores and loan to values play a big role in what your premium is. Remember FHA is a single premium structure based on loan to value and loan term.

As with most thing in life; determining which program offers the best rates and fees is becoming more complicated to determine. Working with dedicated Realtor and mortgage professionals will save you money. All Realtor and mortgage professionals are not the same. Take your time selecting each professional and rely on referrals if possible.

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