We had a buyer come to us this weekend who had been approved for FHA financing by an online lender. The buyer, however, was very well qualified and should have been encouraged to take 5% down Conventional financing over 3.5% down FHA financing.
Why 5% Down Conventional Is Better Than FHA
Conventional financing is better than FHA financing, when buyers qualify, for the following reasons:
1.) There is no up-front MI fee (FHA has a 1.75% fee).
2.) Conventional monthly PMI is less than half of FHA’s monthly MI of 1.35%.
3.) Conventional PMI is not permanent (FHA’s MI is permanent).
4.) Listing Agents and sellers are more willing to accept Conventional offers.
5.) Conventional buyers do not need to make sure condo complexes are “approved” in most cases (FHA buyers can only buy in FHA approved complexes).
When FHA Financing Might Still Be Necessary
Note: Sometimes buyers have to take FHA financing if: (1) cash is in short supply; (2) they have credit issues; (3) they have high debt ratios; and/or (4) their loan amount is over $417,000 where the lowest Conventional option is 10% down.
