Why 5% down conventional loans are better than FHA

By
Mortgage and Lending with Kinecta Federal Credit Union

Fha has just announced that the monthly mip will go up to 1.1% with 5% down payment and 1.15% with 3.5% down payment.  The affect of this is that now it makes 5% down conventional financing more attractive than FHA financing.

As one of the few lenders who still have 5% down on conventional financing up to 417,000; I am going to point out the advantages and disadvantages of FHA vs. Conventional financing.

 

The advantages of FHA financing are.

  • The down payment can be a gift and no reserves are required
  • only 640 minimum fico is required
  • allows non-occupant co-borrower

 

The advantages of Conventional financing are.

  • Condominium financing with 5% down.  With no more spot approvals FHA financing is no longer available on most condo complexes
  • Option to buy Single Premium Mortgage Insurance and have no monthly pmi payment with 680 FICO on condos and sfrs
  • 3% down with 720 fico.  Not available on attached condos.
  • Split Premium Mortgage Insurance with 3% down.  This gives a much lower pmi payment than FHA MIP.  Split premium works just like FHA UFMIP giving an upfront MI and then a monthly pmi payment.
The disadvantages of FHA are.
  • Can't be used on most condominium projects
  • High monthly mip payment
The disadvantages of Conventional are.
  • Need 680 fico
  • need down payment plus 2 months reserves as own funds

The differences between Fha and Conventional financing are blurring quickly, and with the advent of Single Premium Mortgage Insurance to get rid of  the monthly pmi payment.  I believe that Conventional financing is superior to FHA financing.

Comments (1)

Danell Estrada
Highlands Ranch Appraisals, LLC - Highlands Ranch, CO

FHA verses conventional these advantages and disadvantages are good for all of us in this business. Thank you for posting this information.

Feb 27, 2011 07:07 AM