FHA or Conventional 5% with No PMI

[Katherine Tilley]

My husband and I are buying a our first two-family house-hack. We have two lenders: one that offers the typical FHA 3.5% down and another local bank that offers a conventional 5% down, both 30 year fixed-rate. The local bank's mortgages never change hand so they are able to not charge any PMI. We feel the 5% conventional is a no-brainer because no PMI will allow for a higher NOI and the possibility of not necessarily refinancing when we move onto our second house-hack, assuming we are able to save up enough for the next down payment and closing costs.

This being our first house-hack, I’m wondering if anyone has any advice or can maybe offer insight to something we might be overlooking? 

[David M.]

@Katherine Tilley

If you can swing the 5% down, go with that. Slightly less headaches by forgoing the FHA loan and, as mentioned, the MI on the FHA will never come off. Also, there is the upfront mortgage fee which is pretty hefty. If the local bank is offering their own product which avoids PMI, even better. I assume the rates are the same/competitive?

At the end of the day, its really a numbers game. Don't necessarily be "afraid" of the MI never coming off a FHA loan -- just think of it as part of the interest rate and the cost for getting that loan product. same as with the upfront mortgage fee which honestly in my opinion can sort of defeat the purpose of the slightly lower 3.5% down (or just compensates for it perhaps).

Hope this helps.  Good luck.