If you put less than 20% down on a home purchase in California you are going to have some sort of mortgage insurance. This post delves in the differences in mortgage insurance between FHA and conventional loans.
First of all the mortgage insurance is going to much higher on a FHA loan than a conventional loan. FHA loans have two types of mortgage insurance:
- Up front mortgage insurance….1% of the loan balance is added to the loan amount
- Monthly mortgage insurance. This is in most cases 1.15% of the loan balance on a 30 year fixed FHA loan with <5% down payment
Conventional loans generally only have monthly mortgage insurance, they do not have up front mortgage insurance. The mortgage insurance rate depends on your credit score and down payment. If you have good credit the mortgage insurance can be as low as .54% per month for 5% down, .37% per month for 10% down, and .22% per month for 15% down. So as you can see conventional loans have substantially less monthly mortgage insurance than FHA loans AND they have no up front mortgage insurance.
Also, FHA requires that you have the monthly mortgage insurance for five years. After five years IF your current loan balance is 78% of the original purchases price you can get rid of the mortgage insurance. Conventional private mortgage insurance companies only require you have the mortgage insurance for two years. After two years IF your current loan balance is 78% of the original purchase price you can get rid of the mortgage insurance.
So as you can see conventional loans carry much lower mortgage insurance than FHA. So a conventional loan is generally a better choice if you can qualify. But conventional loans have much more strict underwriting guidelines than FHA loans, such as lower maximum debt-to-income ratios and higher credit score requirements. And FHA loans generally carry slightly lower 30 year fixed mortgage rates. So you have to compare the two options closely.
If you have any further questions or would like to be approved for a home loan in California please don’t hesitate to call at 858-922-7899 or email at homeloan8@gmail.com
Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA, VA, conventional, Homepath specialist)
858-922-7899
homeloan8@gmail.com
Related posts:
- When Can You Stop Paying Mortgage Insurance On a FHA Loans In California?
- New Mortgage Insurance Requirements When Get FHA Loan In California
- Demystifying Mortgage Insurance
- Conventional Interest-Only and Adjustable Loans Now Harder to Qualify for In California
- Condo “Walls-In” (HO-6) Hazard Insurance Now Being Required for FHA Loans Condo Loans
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