Over the past few years, mortgage loans and interest rates have declined and stayed near record lows. As a result, FHA mortgages have gotten more expensive. Because of this, many homebuyers are now turning to 5% down payment Conventional mortgages.
FHA loans are popular because of their 3.5% down payments available to all home buyers. Conventional loans, however, require a 5% down payment. Because of the 1.5% greater down payment requirement, credit scores must be higher for Conventional loans than FHA mortgages. Even though it requires a higher down payment and credit score, Conventional loans are quickly becoming the choice for new homebuyers because of the significant monthly savings.
With a 5% down payment, home buyers are able to avoid a 1.75% upfront mortgage insurance, which is equal to about $3,500 on a $200,000 loan. Conventional loans costs less than half of what mortgage insurance costs on a monthly basis for FHA mortgages, leading to savings of $100 a month or more.
Before committing to a new home loan, make sure to contact a qualified and licensed lender and fully explore all of your options.