For many years, many clients opted for FHA rather than Conventional loans when seeking financing for the purchase of their new home. Often, the reason that FHA appeared the better option had much to do with the cost of monthly mortgage insurance premiums. In many cases the monthly cost for FHA mortgage insurance was better than the cost of Conventional mortgage insurance.

However, since the calculations changed for FHA mortgage insurance in October of this year, many clients are putting Conventional back on the table as a very viable option. And for some clients with higher credit scores, the mortgage insurance will actually be less expensive on a Conventional loan than it will be on an FHA loan.

Let's take a look at an example. For a homebuyer with a 720 credit score seeking to spend $200,000 for the purchase of their new home, they could opt for an FHA loan and only be required to put down 3½% of the purchase price. The down payment in this example would be $7,000. The UpFront Mortgage Insurance Premium for this loan would cost $1,930, which is added to the loan balance, so they would finance $194,930. The monthly Mortgage Insurance Premiums would be $144.75 per month.

But if this same borrower opted for a Conventional loan and could afford to make a 5% down payment, $10,000 rather than $7,000, then the cost of the Private Mortgage Insurance might be as low as $106.08 per month. Additionally, because they would be financing less, their principal and interest payments would be approximately $25 per month lower as well.

Thus by opting for a little bit higher down payment of 5% rather than 3½%, $10,000 rather than $7,000, this buyer could save over $63 per month in mortgage payments!

The underwriting guidelines are quite different for Conventional loans versus FHA loans and there are many reasons that one might choose one loan type over the other, mortgage insurance costs aside. So it is important to work with a Loan Officer that can help you evaluate all options and help you determine which scenarios works best for you in both the short- and long-term.