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FHA or Conventional Mortgage?

I've been pre-approved for a couple of mortgages and I'm trying to understand which is best. I'm a first time homebuyer, so I'm learning as I go.

First is an FHA mortgage with 3.5% down for 30 year fixed. The rate would be 3.375%, with 1.25% PMI per year and 1.75% upfront mortgage insurance.

The Conventional Mortgage is with 5% down, at a rate of 3.875% for 30 year fixed. The PMI would be .94% of the loan amount. No up front mortgage insurance.

Thoughts? I'm thinking the conventional is the best deal because you start with more equity up front, with lower mortgage insurance costs. But I'm not sure if the slightly higher interest rate somehow changes that logic?

Price range is around $150k-160k, in case that matters.

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June 30 2012 - US
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Answers (3)

Derek...Anything that can be done to get those scores up.  If you cna get those scores up to 720 no only are you saving on the rate (which I think may already be a little high) but the factor for the MI will come down as well, making the conventional loan a better choice.  Unless you are in a state that has a mortgage/transfer tax, the 3% allowable concession should get you most of the closing costs covered. 
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June 30 2012
Profile picture for DerekMitchell
Hi Joe. Thanks for the reply! My middle credit score, a couple of lenders have told me, is 700. I'm frankly not sure how long I'd stay in the house -- but the general goal is at least 5-10 years. 

The concession point is a good one ... I was planning/hoping for the sellers to pay closing costs, so it sounds like that may not be completely possible under a conventional mortgage.
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June 30 2012
What is your credit score and how long do you feel you would be in the home.  The longer you are in the home the better the FHA deal will be.  PMI wil eventually disappear and you will be left with a lower rate. Other thing to consider is available cash and if you are asking the sellers to pay for your closing costs. FHA will allow for a 6% sellers concession where as your conventional loan will only allow for 3%
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June 30 2012
 
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