Many borrowers qualify for both government and conventional mortgage programs, and choosing between the two can be complicated. When you’re looking at different upfront charges, interest rates and mortgage insurance costs, finding the cheapest option can be a challenge. If you wish you had a geeky friend to compare both FHA and conventional mortgage programs and give you the bottom line result, you’re in luck. The MoneyGeek.com FHA vs. Conventional Loan Calculator does exactly that.
Monthly Payment (First Year)
How much you will pay each month in the first year of your loan
Includes mortgage insurance fees for FHA loans and pricing adjustments based on credit score and down payment for Conventional loans. These costs can be rolled into the loan balance.
Total 30-Year Cost
Loan cost over a 30-year loan term.
Total 5-Year Cost
Loan cost over the first 5 years.
Monthly Mortgage Insurance
Amount you must pay at closing, which is applied to the loan balance
Calculator results are rounded to the nearest whole dollar.
How to Use the MoneyGeek FHA vs. Conventional Loan Calculator
All new FHA borrowers pay a premium into an insurance fund that reimburses lenders when a borrower allows a foreclosure. The insurance fund and promise of repayment backed by the U.S. Government gives lenders the confidence to lend money to people who might not qualify for a conventional loan. There are two FHA mortgage insurance premiums new borrowers must pay. The first is a one-time, up-front premium. This is call the “Up-Front Mortgae Insurance Premium” (UFMIP). The second is the on-going, annual fee that’s calculated every year. As your loan balance falls, the annual premium is recalculated and decreases.
The calculator above shows you how much your UFMIP will be, and how much you can expect to pay during the first year of your loan. As mentioned, expect your annual amount due to decrease with each passing year.
|Input||What To Input|
|Home value||For a home purchase, use the home’s appraised value or the purchase price, whichever is lower. For a refinance, estimate the property’s current value unless you have a recent appraisal.|
|Down Payment Option||FHA loans require at least 3.5% down, while most conventional mortgages have minimum down payments of 5%. You can enter the down payment as either a percentage of the purchase price or a dollar amount.|
|FHA Interest Rate||Lenders disclose two interest rates – the stated or advertised rate, which is used to calculate your payment, and the APR, which incorporates the loan costs and is useful for comparing loans. For this calculator, use the FHA loan stated rate.|
|Conventional Interest Rate||Input the conventional loan’s stated rate, not its APR. The stated rate is what’s used to calculate your monthly payment.|
|Credit Score||Conventional loan fees and mortgage insurance costs vary according to your FICO (credit) score. If your report has two scores, use the lower one. If there are three, use the middle score.|
|Output||FHA Output||Conventional Output||Difference|
|Monthly Payment(First Year)||Your monthly payment in Year 1. Payments for ARM loans and loans with FHA mortgage insurance premiums can change over time.||Your monthly payment in Year 1. Payments for ARM loans and mortgages with private mortgage insurance can change over time.||The difference between Year 1 payments. This amount can change in subsequent years.|
|Upfront Costs||FHA mortgages require upfront mortgage insurance premiums, which can be paid out-of-pocket or rolled into the loan.||Conventional loans have surcharges based on down payments and FICO scores. You can pay them upfront or accept a loan with a higher rate instead.||The difference between FHA and conventional upfront loan costs. In general, conventional loans cost less for people with good credit.|
|Total 30-Year Cost||The total cost of an FHA loan, including down payment and closing costs, all payments and mortgage insurance premiums.||The total cost of a conventional loan, including down payment and closing costs, monthly payments and private mortgage insurance.||The difference between conventional and FHA costs – mortgage insurance, payments and closing costs.|
|Total 5-Year Cost||The cost of carrying an FHA loan for five years – upfront charges, mortgage insurance and payments.||The cost of carrying a conventional loan for five years, including closing costs, private mortgage insurance and payments.||The difference between FHA and conventional costs over five years – mortgage insurance, payments and closing costs.|
|Monthly Mortgage Insurance(First Year)||Annual MIP is based on the loan balance at the start of the year, divided by 12 and added to your monthly payment.||Annual private mortgage insurance is based on your beginning loan balance, divided by 12 and added to your monthly payment.||The difference depends on the difference in the rate for FHA mortgage insurance premiums and private mortgage insurance for conventional loans.|
|Down Payment||Minimum FHA down payment is 3.5 percent, but you can choose to pay more to reduce your interest costs.||Most (but not all) conventional programs require at least five percent down.||FHA and conventional programs may have different down payment requirements.|
When Is an FHA Loan Right? When Is a Conventional Loan Right?
Example Where FHA Loan Allows Purchase of a More Expensive House
|Property Price||$160,000 for Conventional, $200,000 for FHA|
|Down Payment Amount||3.5% or 5%|
|Buyer’s Story||Jim and Lisa want to buy a $200,000 home for themselves and their 12-year-old daughter, but they’ve only saved about $8,000. Their seller is willing to cover closing costs to maximize their available cash. Their 675 FICO score means conventional lenders would charge a 2.25 percent risk-based adjustment and a 1.21 percent annual mortgage insurance premium.|
|Key Factors in the FHA/Conventional Decision||FHA’s 3.5 percent down payment gets them a $200,000 house, but 5 percent down on a conventional loan buys only a $160,000 home. In addition, FHA programs allow sellers to pay up to 6 percent of the sales price in closing costs, while conventional programs allow only 3 percent.|
|Is FHA or Conventional the Right Choice?||A willing seller could cover the upfront mortgage insurance, lender charges, discount points for a lower rate (3.5 percent for an FHA loan vs 3.25 percent for conventional financing), and other closing costs – up to $12,000 worth for a $200,000 house.|
|Base Loan Amount||$193,000||$152,000|
|Addt’l $ for Closing||$8,623||$1,380|
Here, the lower down payment and seller concessions make the FHA loan better for this family. Now let’s look at an example where a conventional loan is better choice for the home buyer.
Example Where a Conventional Loan Is the Best Option
|Down Payment Amount||10%|
|Buyer’s Story||Jason, 38, is a first-timer looking for a $200,000 property. He expects keep the property “forever,” turning it into a rental someday.|
|Key Factors in the FHA/Conventional Decision||Jason’s FICO score is a respectable 699. Conventional surcharges are 1.25 percent for borrowers in that range. FHA loans carry a 1.75 percent upfront MIP regardless of the borrower’s credit score. Jason has $25,000 saved and is putting $20,000 down, so he can pay either upfront charge.|
|Is FHA or Conventional the Right Choice?||Because Jason can pay his upfront charges out-of-pocket, he won’t require seller concessions, and he won’t need to increase his loan amount or interest rate to cover the closing costs. Because of this, both loans have the same rate and amount. Annual mortgage insurance is lower for the conventional loan. In addition, FHA charges MIP for the entire term, while private mortgage insurance eventually drops off conventional loans. This is important because he plans to keep the home for the entire term of the loan.|
|Base Loan Amount||$180,000||$180,000|
|Principal & Interest||$783.37||$783.37|
Because of his credit score and down payment, Jason’s upfront cost, monthly payment, and cost over the life of the loan are all lower with the conventional mortgage. Also, FHA mortgage insurance applies for the life of the loan. That’s not the case for private mortgage insurance where it is cancelled when the home equity reaches a certain point. Now let’s look at a situation where it’s unclear whether an FHA or Conventional loan is the right choice.
Example Where the Best Option Is Unclear
|Down Payment Amount||$10,000|
|Buyer’s Story||Clarissa, 25, is moving to take a new job and has saved $10,000 for a house in the $200,000 range. She expects to keep this home for three-to-five years.|
|Key Factors in the FHA/Conventional Decision||Clarissa’s credit history is minimal and her FICO is a modest 638.Conventional lenders will add 3.25 points in risk-based surcharges to her closing costs. With five percent down, she can’t cover this charge, but can get a “no-cost” loan at a higher rate instead. Clarissa’s private mortgage insurance premium will also be higher because of her FICO score – 1.37 percent per year for a 95 percent loan.|
|Is FHA or Conventional the Right Choice?||FHA’s upfront MIP (which can be wrapped into the loan) is always 1.75 percent, and the annual MIP is .8 percent for most borrowers. Clarissa’s offered a 3.25 percent FHA mortgage with 3.5 percent down, and a “no-cost” conventional loan at 3.85 percent.|
|Base Loan Amount||$196,378||$190,000|
|Upfront Costs (mortgage insurance)||$3,378||$0|
|Principal & Interest||$854.65||$890.74|
For Clarissa, the FHA mortgage requires less money out-of-pocket and provides the lower rate and payment. According to MoneyGeek’s calculator, the five-year costs are over $10,000 lower for the FHA loan.
Other FHA and Conventional Loan Resources
Learn more about your FHA home loan options. If a conventional loan better fits your needs, MoneyGeek can help you learn more about this option, too.
Worried about qualifying for FHA financing? This “cut-to-the-chase” guide takes the guesswork out of applying for an FHA home loan. Compare your down payment, credit report, debts and income to the guidelines listed here to see where you stand
In addition, there are user-friendly tools to help you calculate your own debt-to-income (DTI) ratios. You’ll see your FHA mortgage application through an underwriter’s eyes, and get tips for improving your chances for loan approval.
Featuring assistance from MoneyGeek’s expert advisors, it’s like having an FHA “loan coach” working with you in the privacy of your own home.
Up for the challenge of a non-government home loan? Qualifying for conventional loans can be trickier than getting approved for FHA financing. Private mortgage lenders and insurers assume the risk when they loan to you, so their requirements are often more demanding.
Private mortgage insurance (PMI) is required for nearly all conventional loans with less than 20 percent down. PMI can cost more — or less — than FHA insurance.
The PMI calculator on this page tells you what your premium is likely to be, and demonstrates how changes in FICO score and down payment can affect your monthly PMI costs.
Congress created the FHA mortgage program to increase homeownership for those with moderate incomes, not to help millionaires buy mansions.
There are limits to the size of loans the government will back, and these limits depend on median home prices in the property’s county or metro area. Maximum loan amounts range from $271,050 to $625,500. Higher limits apply in Hawaii, Alaska, Guam and the USVI, and for duplexes, tri-plexes and fourplexes.
Don’t know the FHA limits in your area? No problem – clicking the map on this page lets you easily find your 2016 maximum FHA loan amounts for your area.
Thinking about refinancing an FHA home loan? There are three methods:
- A cash-out refinance of up to 85 percent of the home value
- A “streamline” limited cash-out refinance with an appraisal, which can allow you to roll refinancing costs into the new loan
- A “streamline” rate-and-term refinance without an appraisal – best if you’re worried about having the home value, credit score or income needed to qualify for a traditional refinance
This helpful page details various FHA refinance requirements. It also offers an FHA refinance calculator, which analyzes loan costs and potential savings, helping you decide if refinancing is right for you.
Your mortgage application is the story of your financial life, and the better you are at telling this story, the higher your chance for loan approval.
This application “crash course” is the only guide you’ll need to apply for an FHA home loan. By breaking down a complicated process into manageable, small phases, MoneyGeek makes it easy.
Step by step, you’ll learn how to document your income, assets and other qualifications, and complete the mortgage forms.
You stay in your comfort zone, without the pressure of being in a lender’s office, while experts walk you through the FHA application process.
According to Realty Today, seven of ten people surveyed claim that buying a house is as stressful as divorce. Luckily, you can relax if you have this guide on your side.
You’ll find tools to determine if you’re ready for homeownership, advice about closing costs and escrow, and a list of home buying mistakes to avoid.
This page covers the entire process, from the decision to buy a home to what happens at the closing table. Step-by-step instructions, including everything from mortgage pre-approval to finding a real estate agent, make it hard to go wrong, even if you’re a real estate novice.