FHA vs 3% down Conventional
Great News!
I love saying that because it seems over the last five or six years everything’s been, heads up this bad thing is happening. Not this time, there are two changes that are great news for the housing market. Conventional 3% down is back & FHA has reduced there monthly mortgage insurance! Let me explain . . .
First a little history on the way this all went down. Back middle of December 2014 Fannie Mae announced that they were bringing back the 3% down conventional loan program. The program had gone away a few years ago during all the tightening. The new 3% down program has some fairly tight credit qualification, but overall is a great option for first time buyers with a good credit history. When compared to FHA at the time the mortgage insurance was less in most cases. Personally I think what happened after the Fannie announcement is FHA did a little math and figured out that they were going to lose the pool of buyers that had good credit. Then the loans they would end up with in their portfolio would be the more troubled loans. Think 1000’s of loans, when your looking at x% go into foreclosure now; losing the strong loans means x% that go bad is a lot higher. Not good if your FHA!
So here were are less than a month later and FHA announce a huge reduction in monthly mortgage insurance. Which means the FHA program is more attractive now to most buyers seeking low down payment options.
Lets look at an example: (note PMI and rates vary based on a number of factors such as credit score, so specific borrower will see slightly different numbers.)
| Conv. | Old FHA | New FHA | |
|---|---|---|---|
| Purchase Price | $150,000 | $150,000 | $150,000 |
| Down Payment | $4,500 | $5,250 | $5,250 |
| Upfront PMI | $0 | $2,533 | $2,533 |
| Monthly PMI | $158.84 | $161.54 | $101.71 |
| PMI Paid After 5 yrs | $9,530.40 | $12,225.40 | $8,635.60 |
One more thing that should be mentioned. With the 3% down conventional the interest rate is higher than FHA, how much higher depends on credit and other factors. Expect to see roughly a .5% higher interest rate. That combined with the higher PMI makes the FHA option rule over a 3% down conventional in most cases. The one down side to FHA is that the mortgage insurance never goes away. I’d love to see FHA go back to the days where the MI dropped off when the loan reached a 78% loan to value. So I suppose buyers who are going to be in the home for many years may be better off with a conventional 3% down loan over FHA. However most people move every 5 years or so.
Check out the short video I made for more information or give me a call!
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The “obvious” choice for your mortgage might actually be the most expensive path if you don’t account for the unique terrain of the West Michigan housing market. While you might assume a massive down payment is the only way to avoid financial turbulence, comparing a Conventional vs USDA Loan Michigan reveals that the right flight plan often involves much less upfront cash than expected.
We understand that staring at a map of geographic eligibility or weighing monthly mortgage insurance costs can feel like flying through heavy fog. It’s frustrating when you’re ready to move but feel grounded by confusing requirements. This guide will help you compare these options with the precision of a seasoned navigator. You’ll learn how to identify if your dream neighborhood is USDA-eligible, how the 2026 loan limit of $832,750 impacts your Conventional path, and how the $119,850 income limit affects your USDA eligibility. By the end of this flight plan, you’ll have the expert coordinates needed to choose a loan that offers maximum lift for your West Michigan home journey.