First Time Homebuyer: FHA vs Conventional Loan

Google
Lioness

Go to company page Google

Lioness
Dec 2, 2020 19 Comments

Hi all,

I'm a first time homebuyer purchasing a new build in Texas.

Purchase Price: $500K
Down payment: 20%
Credit: Good

FHA Loan 404K
Term: 30 years
Interest: 2.1%
MPI: $295/per month

Conventional Loan
Term: 30 years
Interest: 4.25%
MPI: $0

My lender highly suggest that I go FHA to get the low interest rate and re-finance in a year or so for a low interest conventional loan to drop the MPI. Although I'd have to pay an MPI, I'd save a lot on interest in the long run.

It would be great to hear your thoughts on this and what you think the best option is.

comments

Want to comment? LOG IN or SIGN UP
TOP 19 Comments
  • Indeed / Eng
    indoob

    Go to company page Indeed Eng

    indoob
    How much is the MPI (in terms of a percentage, annually?). If it’s it’s about 0.75% (hypothetically), you’re still coming out ahead with the FHA at 2.85% APR as opposed to the 4.25%+ from the conventional. But you should request full estimates so you know the APR for both, and compare that as such. Interest rates alone can be deceiving.
    Dec 2, 2020 6
    • Indeed / Eng
      indoob

      Go to company page Indeed Eng

      indoob
      @Lioness I would stop looking at each expense separately, and rather look at the total cost of a loan overtime. It’s easier that way.
      Dec 2, 2020
    • Indeed / Eng
      indoob

      Go to company page Indeed Eng

      indoob
      Another thing, consider the amortization table. If you don’t expect to live in the house for the whole duration of the loan, choose the mortgage with the lowest interest rate, even if the APR is the same. The reason is that interest is heavily weighted against the first few years of a mortgage, and little goes to principal.

      For example, two loans with APR 3.0%, one with interest rate 2.95% and the other one with 2.2% and 0.75% insurance are not the same. The insurance is not amortized, it’s flat.
      Dec 2, 2020
  • Amazon
    Alhambra

    Go to company page Amazon

    Alhambra
    Wow that interest on the conventional is extremely high. Do you have a really poor credit score? If not, shop around instead. Pmi on fha loans are permanent now and refinancing takes away the whole point of getting a loan now.
    Dec 2, 2020 3
  • Lyft
    heiwnftw

    Go to company page Lyft

    heiwnftw
    Try another loan agent? That conventional loan percentage it way too high.
    Dec 2, 2020 0
  • Google / Product
    vwzJ60

    Go to company page Google Product

    PRE
    Google
    vwzJ60
    So here's the deal, if you stick with FHA for 15 years, then you decide to refinance, you've just sunk $53,100 that you could have paid towards principal. How much more would you have saved in interest on that conventional loan if you sunk that much in 15 years towards principal? Sure you could refinance to conventional 2 years in but for sure rates won't be as low as they are now, so you may be locking in at 4 to 5 percent. In addition, you're also looking at closing costs from 3 to 8k on top of the new .05% refinance fee of the total loan amount.
    Dec 2, 2020 1
    • Google / Product
      vwzJ60

      Go to company page Google Product

      PRE
      Google
      vwzJ60
      Also 4.25 for conventional 30 is kinda high for right now. That looks like an investment property rate. You should shop around some more
      Dec 2, 2020
  • U.S. Securities and Exchange Com / Consultant
    RSUmonitor

    Go to company page U.S. Securities and Exchange Com Consultant

    PRE
    IBM
    RSUmonitor
    I just got quoted 3.8% on 30 year conventional and that even seems a bit high to me.
    Dec 2, 2020 0