New Mortgage Calculator Lets You Compare FHA with Conventional Loan

by Gina Pogol
April 19th, 2010

A new mortgage calculator from mortgage insurer PMI allows you to see which home loan would cost you less on your next home purchase or mortgage refinance–FHA or conventional.
Until recently, when the cost of FHA’s upfront mortgage insurance premiums increased from 1.75% tp 2.25%, it was taken for granted that FHA was the cheaper option, all the time, end of story. But today, there are other considerations on both sides of the equation.

In This Corner, Risk-based Pricing Adjustments

Fannie and Freddie began implementing this scheme over a year ago, and it can get expensive for those with little down payments and small- to medium-sized credit issues. Oh, yeah, or condos. Or manufactured homes. Or multi-unit properties. They’re called loan-level pricing adjustments, and they can add up to five points to your loan fees.

And In This Corner, Upfront Mortgage Insurance Premiums

FHA, on the other hand, has countered with more expensive insurance across the board, for everyone. So, the program that works out to be best for you, the home buyer with the halo on your head and at least 5% down, may not be the best for the best one for the guy with the, um, “interesting” past doing a cash-out refinance. It all depends.

Changes Ahead

Mortgage insurers have recently expanded their guidelines to be a bit more competitive (and forgiving!). On the other hand, FHA expects to decrease the upfront premiums once it can get an increase in the monthly charges approved. So make your calculations today, knowing that you may have to do them again in a month or so.

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This entry was posted on Monday, April 19th, 2010 at 6:32 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

2 Responses to “New Mortgage Calculator Lets You Compare FHA with Conventional Loan”

  1. JL Says:

    The calculator is a little misleading. It shows up front MI option as a savings vs. FHA but fails to mention that FHA will allow the fee to be financed into the loan.. which will increase the payment slightly as well but save the borrower out of pocket expense which seems to be the primary issue.

    The majority of borrowers just want to know how much it’s going to cost them out of pocket to get the deal done and how much they will have to pay per month. Both favor FHA regardless of the ‘true cost’ favoring PMI

  2. Gina Pogol Says:

    Even if you finance it, you are paying the upfront premium. It would be misleading I think to imply otherwise. The one savings that the calculator does fail to consider, because it’s impossible to predict, is the extra profit you could realize when you sell your property if mortgage interest rates have increased. The assumable feature of FHA loans could add to the value of your home and thus increase the selling price.

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