I just got preapproved and my lender is giving me two options:
• FHA 3.5% down
• Conventional 5% down
FHA has a lower rate, but I’ve heard the PMI never goes away?
Conventional is slightly higher monthly, but the mortgage insurance drops after 20%.
Has anyone gone through this decision before? Pros/cons?
I recently faced this choice too, here’s a quick breakdown:
FHA (3.5% down):
( Lower rate, easier to qualify, but the PMI (MIP) is permanent unless you refinance. Also includes an upfront mortgage insurance fee. )
Conventional (5% down): ( Slightly higher rate. PMI drops off at 20% equity, no upfront fee. Better long-term if you qualify. )
My take: FHA is good short-term if cash or credit is tight. But if you plan to stay long-term, conventional often saves more in the end.
I almost went with FHA because of the lower rate and smaller down payment, super tempting. But what held me back was that the mortgage insurance never drops off, which means higher costs in the long run unless you refinance.
I ended up choosing conventional with 5% down. Yeah, the rate was a bit higher, but I liked that PMI falls off once I hit 20% equity. It felt more flexible and better suited for staying in the home a while.
If you’re planning to upgrade in a few years, FHA might be fine. But if this is a longer-term place, conventional could save you more.
Either way, congrats on the preapproval! That’s a huge milestone.
@Adam.Youhanna is a residential mortgage broker I believe and can help answer these types of questions. From what I know, some banks would have PMI go away back in the day when you had 20% equity but not anymore. Recently someone called me to get my advise on a refi. I said; you have a 3% interest rate. Pay the PMI all day and don’t refi. If you need the money get a HELOC.