FHA or Conventional Mortgage

This can be a very difficult question to answer for buyer(s). The points to consider are these:

1. What is the middle score of the prospective buyer(s) 660 or below I would recommend FHA.
2. What amount does the buyer(s) have for a down payment, 3.5% of sales price required FHA, 5% of sales price required for Conventional.
3. Do your buyer(s) need or want down payment assistance? Both accept DPA, stricter requirements for FHA mortgages
4. Do your buyer(s) need a higher debt to income ratio? Conventional maximum is 45%, FHA maximum is 57%.
5. Do your buyer(s) have a bankruptcy, foreclosure, deed in lieu? Minimum time frame FHA is 2 years after the discharge date, minimum time frame for Conventional is 4 years.
6. Is this your buyer(s) forever home? Can they pay a larger down payment?

Private Mortgage Insurance should be considered,

FHA requires 1.75% of the sales price to be added to the mortgage amount which can be financed or paid in cash by the buyer(s), the monthly premium with 3.5% down payment is .85% of the sales price and upfront Private Mortgage Insurance and never drops off.

Conventional mortgages do not require Upfront Private Mortgage Insurance and depending on the buyer(s) middle credit score the monthly premium can be as low as 15% of the sales price, and when you have 20% equity in your home the Private Mortgage Insurance is removed.

Look at the following comparison:

$300,000 purchase price, minimum down payment, 740 or higher middle credit score, the current FHA interest rate available at 10:40am on 1-5-2023 is *5.875%. The current interest rate for this scenario on a Conventional mortgage is *6.25%. Should be a no brainer decision! Right?

WRONG! The PIMI (principal, interest, mortgage insurance) payment on the FHA loan is $1947.75 per month, and the payment for the conventional loan is only $1826.04.