FHA’s Increased Monthly Mortgage Insurance Goes Into Effect Today

Now more than ever it is better to go with a Conventional loan than an FHA loan.  In the State ofFlorida, an FHA loan requires 3.5% down and a Conventional loan requires a minimum of 5% down.  The only problem some may run into with getting a Conventional loan is that you need a minimum of a 680 credit score.

The debt to income ratio requirements on a Conventional loan are more strict limiting it to a maximum of 41% and sometimes as high as 45% but really you shouldn’t be any higher than that anyway.  Just based upon what the mortgage insurance companies are doing you can see more liquidity is coming back to the market.  You can now get financing on attached housing in Florida and go up to 45% debt to income ratios where before no one was going over 41%. 

With a Conventional loan the monthly mortgage insurance is less than that of an FHA loan.  Typcially a Conventional loan only requires you to keep the mortgage insurance on for a minimum of 2 years AND until you have 20% equity in the property where FHA is 5 years AND 22% equity.  It is your responsibility as the borrower to contact your mortgage servicer to get it removed.

In addition to an FHA loan having a higher monthly mortgage insurance premium there is also a one time Upfront Mortgage Insurance Premium (UFMIP) of 1% of your loan amount.  This does get wrapped into your loan amount but is a charge nonetheless. 

MGIC, one of the mortgage insurance companies, has a great illustration comparing a Conventional loan to an FHA loan http://mgic.com/education/mi_better_option.html

I am not a real estate agent nor do I pretend to be but my experience has been that a seller is more inclined to accept a Conventional loan over an FHA loan because there is a misconception that a Conventional loan is more likely to get approved.  The appraisal guidelines are a little less strict than FHA but that is about it. 

Both loans are good loans but as you will see a Conventional loan is less expensive.  No matter what I would always suggest looking at putting less money down if you do not have a lot of money leftover after closing and if you are not maxing out your retirement.