FHA or 5% Conventional

[drfstl]

So I've been wracking my brain over this, but still can't come up with a satisfactory answer on whether to go with the FHA or 5% down Conventional.

The terms that I've received from the lender are:

FHA - $212,000 purchase price, borrow $201,400 (5% down) + $3,524.50 (UFMIP) = $204,924 total borrowed, 3.5% rate = $920.2 (P&I) per mo., MI = $204.93 per mo.

5% Conventional - $212,000 purchase price, borrow $201,400 (5% down), 4% rate = $961.51 (P&I) per mo., PMI = $112.45 per mo.

I've ran the numbers and I see that in the long run FHA would save more money. I also see that the conventional route would cost less in the earlier months, however the FHA would still more than make up for it on the back end.

The hangup I've had is that the conventional can allow for dropping PMI earlier than the FHA loan would drop MI. According to my math (which may be way off), it looks as if the breaking point would be about a year and a half - where if I could drop PMI by that time before the point I would be able to drop MI with an FHA, then it would be worth it to go the conventional route. Does this make sense? The question is, how likely is it that I would be finished paying off PMI compared to paying off MI for an FHA? I realize county appraisals aren't everything, but the appraisal this year on the home was at 254k with the purchase price of 212k. So I really don't want to miss the opportunity of saving money by not going with the conventional, however if I end up paying PMI for the entire period then it would be better to go FHA.

Thoughts?

[Erik Sandstrom]

Your calculations are very close to being accurate and it sounds like a tough choice. If you put 10% down the MI premium would be less than if you put 5% - 9.99% down, this might be something you would want to check out. You also have the ability to finance a Single Premium MI which is a one-time payment usually equals out to being 3-3.5 years of your typical mortgage insurance payment.

And Yes with a Conventional loan you have the ability to remove the mortgage insurance the moment you reach 80% LTV.

In the San Diego market I have seen property values stabilize and start to go back up. Not too sure about your area but in my opinion we have hit rock bottom. I'm starting to see stimulation in the economy with many more buyers looking to purchase new homes. You should be able to remove that MI in no time (in my opinion), if I were you I would take the conventional route.