![\"\"](\"http:\/\/www.michaeladeery.com\/blog\/wp-content\/uploads\/2012\/10\/fha-vs-conventional12.gif\" "\\"fha-vs-conventional1\\"")
<\/a><\/p>\nCompare a $400k Purchase Using FHA vs Conventional<\/strong><\/em><\/p>\n Here is a scenario below that compares a buyer purchasing a $400k home with the “Conventional 5% Down NO MI Purchase Option”, versus a FHA buyer using FHA financing and 3.5% down.<\/p>\n On the left column is the conventional option<\/strong>. The buyer has a loan of $380k (5% down), and gets a rate of 3.75% on a 30 year fixed. The buyers total PITI (principle and interest, taxes and insurance) payment is $2,176 a month.<\/strong><\/p>\n On the right hand side is the FHA option.<\/strong> The buyer has a loan of $386k (3.5% down) and gets a rate of 3.5% on a 30 year fixed. The buyers total PITI (principle and interest, taxes, homeowners including FHA insurance) payment is $2,552 a month<\/strong>. *This is an increase of $376 a month and $35k over the next 10 years!<\/p>\n The conventional buyer saves $376 a month and $35k over the next 10 years<\/strong>. You can see below just how much more in interest and mortgage insurance the FHA buyer will pay in total over the next 10 years, compared to the conventional buyer.<\/p>\n In Summary.<\/strong> Instead of buyers going with FHA and paying the expensive mortgage insurance each month, buyers should look into the conventional loan option too, because it will always have a lower overall monthly payment because there is NO monthly mortgage insurance.<\/p>\n Also, monthly savings of $375 goes along way for many buyers these days! For example, it can mean a new car payment for some, or additional savings they can put into a college fund for kids or retirement. Or a buyer can also turn around and put the additional $375 monthly savings into purchasing a bigger home, in this scenario above, the conventional buyer can afford to buy $50k more in home, and still have the same overall monthly payment as the FHA buyer.<\/p>\n FAQ’s About the Conventional 5% Down NO MI Program<\/em><\/strong><\/p>\n Here are a few of the most frequently asked questions<\/strong> that buyers and agents have in regards to the Conventional 5% down NO MI loan option.<\/p>\n 1. What is the maximum loan amount with 5% down?<\/strong><\/p>\n The maximum loan with 5% down is $417k which is the conventional loan limit. But this program is also available on Fannie Mae jumbo loans up to 90% loan to value, for example in San Diego a buyer can finance up to $546k (Fannie Mae jumbo loan limit) with NO monthly mortgage insurance.<\/p>\n 2. Can you get 5% down No MI on 2nd homes or Investment Properties?<\/strong><\/p>\n No, the 5% down option is for Primary Residences only. But you can still get 90% financing on 2nd homes with this loan program. This program is NOT available on investment properties as you have to put down a minimum of 20%, which eliminates mortgage insurance anyway.<\/p>\n 3. Why is there NO mortgage insurance?<\/strong><\/p>\n It is very simple. All a buyer has to do is take a slightly higher interest rate than normal, say from 3.5% to 3.75%. The additional yield (lender credit) available on the higher rate “buys out” the mortgage insurance. Essentially the mortgage insurance get paid off upfront using the lender credit.<\/p>\n 4. What credit score is required to qualify?<\/strong><\/p>\n There are a few lenders that only require a 620 credit score to qualify for this loan program. *But note the lower the credit scores, the higher the interest rate will be.<\/p>\n 5. Are there reserves required for this loan program?<\/strong><\/p>\n Yes, usually the program requires at least one month of reserves, which is equal to one monthly mortgage payment.<\/p>\n 6. Can the buyer receive the 5% down payment as a gift?<\/strong><\/p>\n Unfortunately NO, the 5% funds must come the buyer. The funds have to sourced and seasoned in their bank account for 30 days.<\/p>\n 7. Do condos qualify for the NO MI 5% down program?<\/strong><\/p>\n Yes, buyers can purchase condos with only 5% down and qualify for this loan option. *This is a great option in complexes that are NOT FHA approved.<\/p>\n 8. Isn’t FHA rates lower than conventional rates on this program?<\/strong><\/p>\n FHA rates are lower, but when you factor in the very expensive FHA monthly mortgage insurance, the overall monthly FHA mortgage payment will always be higher than the conventional payment. (*see scenario above for an example comparing both loan options).<\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n