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Is conventional mortgage always better tha FHA if credit score and downpayment are not an issue?

I'm looking for a 30yr loan.  Could qualify for both conventional and FHA.  Just saw the rate for convemtional is 3.25% and FHA 3%.  But the APR is higher for FHA.  So what's the extra cost for FHA comparing to conventional?  Is conventional always a better option if you can qualify and downpayment is not an issue?
  • December 05 2012 - US
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Answers (3)

Yes 100%, although FHA has better interest rates upfront, the cost of the Up Front MIP on the FHA loan could most likely get you the same rate on a conventional loan. If you can get the same rate for even a slightly higher cost than Conventional trumps FHA simply from a standpoint of not having MI given you put at least 5% down and choose a Single Premium MI option.

there are many variables that go into whether or not either or is the best option including how long you plan on staying in the home personally, the long term plan, and whether or not you plan on getting FHA financing on another property in the future in the same area.
  • December 05 2012
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I agree Conventional loans will offer you a lower APR because when you put down at least 20% they do not carry the extra up front fees that FHA charges for Up Front Mortgage Insurance Premium and Monthly Mortgage Insurance Premiums.
  • December 05 2012
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Conventional is better given a couple reasons.

There is NO MIP added on top of the loan and the monthly mortgage insurance is lower.
,
i.e. Conventional Loan  Purchase price of $100k - Down Payment of 5% = $95k Loan.

On FHA you add ,0175% to the loan.  i.e. Purchase price of $100k - Down Payment of 3.5% = $96,5K + Upfront MIP of $1688,75 equals a beginning loan balance of $98,188.  

On FHA you must carry the mortgage insurance for a minimum of 5 years and until you reach 22% equity, whichever is longer. 

If you have the right lender, you can get a 2% down Conventional with NO PMI (No mortgage insurance)  Certain qualification restrictions.

Contact me if you'd like more information.

Ron Jensrud
Exclusive Buyers Agent
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  • December 05 2012
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