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Should I go Conventional or FHA with 5% down?

I want to make an offer on a house, I can put 5% down and the value of the home is between 360,000 to 380,000.  I have excellent credit and low debt to income ratio with a good salary.  If I got FHA, I can get a rate of 3.25% with a 3.5% down payment, with a Conventional loan , I have to pay more of a down payment and I am not sure if I can get a rate as low as 3.25%. I did a search and the APR I found on lending tree was 3.29%.  I just want the lowest monthly payment, any advice?
  • October 01 2012 - US
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Answers (12)

If you are looking for the lowest payment I would go with a conventional loan with lender paid mortgage insurance.  Your rate will be a little higher on a conventional loan but without monthly mortgage insurance your payment will be much lower versus going FHA.

  • October 02 2012
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Since you have excellent credit and a low debt ratio you would be rewarded for that and get a much lower MI payment on a conforming loan at the same rate. The other consideration is the lender premium ( lender credit to you ) on the FHA loan, it is much higher than a conforming loan. Feel free to send me an email explaining both. 
  • October 02 2012
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Provided your credit is good and the extra down payment is not going to put stress on your wallet, the conventional loan is the way to go.  The rate may be a little bit higher but the mortgage insurance for the FHA loan is almost double.

  • October 02 2012
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Profile picture for Runner1980
Our combined gross salary is around 10,000 per month.  Our combined unsecured debt (all greater than 10 months of installment payments to go) is about 400 a month. We have about 30,000 cash on hand (not including cash reserve like 401k).  We want to buy a  multi-family dwelling 2 (fam) in order to rent one unit out.  Real FICO score on pre-approval is above 760 for both of us. 

We can continue to save until we have 20% down and forgo the Mortgage Insurance, but who knows what the rates and home prices will be in 15 to 20 months.  I mean, it's a big decision and a big risk but I can't rent forever. 

Would closing costs be around 8000 to 9000 in Bergen County on a 350 to 400k Home with a 3.5% FHA down payment? Problem is, a lot of the properties we like never flood (according to loss runs) but are in a flood zone

Thanks for all the help thus far.
  • October 02 2012
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The lender credit, today, on the 3.25% FHA loan will cover the closing costs.

Bergen County, NJ?
  • October 02 2012
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With a 2 Family house, FHA may end up being your best option.  Clay is correct at 3.25% there should be a credit large enough to cover your closing costs.  You could even get 3.0% these days with a small credit.
  • October 02 2012
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Yes, Bergen County.  But, the Flood Insurance premiums are so hi, do you think they will continue to increase by a lot annually?
  • October 02 2012
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How much are you being quoted for flood insurance?
Joe is an excellent lender for your FHA loan in NJ.   
  • October 02 2012
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Flood Insurance is about 2600 without contents coverage.  The premiums are the same everywhere because it's regulated by the government.  So, using FHA, I can have the closing costs be financed into the mortgage just like the upfront MIP?  
  • October 02 2012
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You do not have to add the closing costs into the loan, you are going to get a huge lender credit to pay the closing costs.  
  • October 02 2012
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I was not aware of that, the lender that pre-approved me never mentioned that.  I was told closing costs would be 8000 to 9000 but never got a good faith estimate yet.  The 8000 to 9000 includes all the title, lawyer, application,  appraisal, underwriter, and county fees and escrows for insurance/taxes.  
  • October 02 2012
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Runner...If you contact me through my profile, I can provide you with a breakdown of all your fees and explain how the lender credit works.
  • October 02 2012
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