Conforming v FHA Loan Calculator

On August 27, 2009

NEW: Run your own FHA v. Conventional Loan Comparisons

Chicago Mortgage Loan Option Comparison

I had an interesting comparison the other day and the numbers sort of surprised me. Notes:

* The purchase price is ficticious, but these rates were real at the time that I was doing the math. Changes in mortgage rates would change the calculations in this post. Check Current Chicago Mortgage Rates
** Payment Total disregards property taxes and insurance because they won’t vary based on the loan program. This is for illustrating the mortgage performance solely
*** At closing disregards all fixed closing costs, transfer stamps, etc. This is solely attempting to isolate the impact of the Up-Front Mortgage Insurance Premium on the FHA loan versus the Fannie Mae / Freddie Mac Loan Level Price Adjustment on the Conforming Option

Results from Conforming and FHA Mortgage Calculators

I’m assuming a $200,000 purchase

Quick Assumptions
Credit Score 700
Down Payment 5%
FHA Up-Front Mortgage Insurance 1.55%
FHA MI Factor 0.55%
Conforming Up-Front LLPA 0.5%
Conforming PMI Factor 0.94%

	FHA	Conforming
Base Loan Amount	$190,000	$190,000
FHA UFMIP	$2,945
Financed Loan Amount	$192,945	$190,000

Rate*	5.%	5.%
Principal & Interest	$1,035.77	$1,019.96
Monthly MI	$88.43	$148.83

Payment Total **	$1,124	$1,169

Payment Edge: FHA

Okay, so we have a slightly better payment with the FHA Loan ,but let’s look at the impact of that up-front mortgage insurance. What we’ve done here is include any upfront interest payments, plus the mortgage insurance premium, plus the cumulative interest. In other words, we’ve removed the cumulative principal to get a truer estimate of the total cost of the mortgage loan. Results:

Costs over Time	FHA	Conforming	Months	FHA Better By
At Closing ***	$2945.	$950.	0	-$1,995
Month 12	$13,589	$12,172	12	-$1,416
Month 24	$34,731	$34,474	24	-$257
Month 36	$66,218	$67,703	36	$1,485
Month 48	$107,889	$111,702	48	$3,813
Month 60	$159,575	$166,304	60	$6,729

Total Costs Edge: FHA by a nose. With rates unlikely to be this low in the next 0-60 month term, refinancing becomes less likely as a means to remove the PMI.

Which is the better loan option?

It depends. For all the things that have changed in the past few years, we’re finally back to normal. Mortgage loans are typically the largest household debt and are not one size fits all. If you’re likely to be relocating, needing a larger home, or needing a smaller home in the next few years, then the Conforming loan may be a better fit. If you’re in this home for 3+ years, FHA has become cool for the 700+ FICO crowd again.