I am thinking about buying my first home with a FHA mortgage because of the lower down payment. Does the FHA insurance make your payments significantly higher than a conventional mortage?
Am I better off saving up to $10,000 for a down payment? I'm tired of paying rent, I'd rather pay a mortgage if the amount isn't too much higher.
Answers | 4
Great question...and yes, the FHA mortgage insurance does significantly increase the monthly payment. FHA mortgage insurance has steadily increased over the last several years to the point now, where even borrowers who are looking to refinance with an FHA loan into another FHA loan, are ineligible becasue the new payment is too high for there to be any benefit. This does not mean that it will not be a good choice, but there are alternatives. For example -
1) You could look at putting a little bit more money down; like 5% and depending on your credit score and other factors, the conventional PMI will be significantly lower than the FHA MI.
2) You could look at options with a conventional first mortgage and then a home equity line of credit behind that for the balance. A common scenario is 80/10/10 (would require 10% down payment)
3) If you are VA eligible, a VA loan does not have mortgage insurance and you may be eligible for up to 100% financing.
I hope the above information helps.
You should contact a mortgage professional in GA who can help you make this highly personal decision. There is definitely not a one size fits all answer on this one.