Government loans getting more expensive

Which is better- FHA loans, Fannie Mae loans or conventional loans?

FHA  raised its monthly and upfront fees this spring, and also made borrowers’ monthly mortgage insurance premium (MIP) effective for the life of most loans. It used to be until you had more equity.  This increased lifetime costs for FHA borrowers.

After those changes, the upfront costs added to an FHA borrowers’ loan on a $200,000 purchase is now $3,377.50 compared to no upfront cost for conventional loans.  As a result, FHA loans have become far less desirable for borrowers who qualify for other options.

With costs rising so much for FHA financing, the 3% down Fannie Mae loan program has been a popular alternative.   The cost of PMI varies with credit scores for conforming loans (unlike FHA).  Another important difference is that the PMI cost is removed when buyers reach 22% equity, a significant advantage over FHA loans.

However, after 11/16, fannie mae buyers will need 5% minimum down payment versus the current 3%. While increased down payments could deter some buyers, there are still significant Fannie Mae advantages over FHA:  they have no upfront mortgage insurance costs, and 5% down Fannie loans also have lower PMI costs than either FHA or current 3% down loans .  Buyers can also utilize gifts from family members for their entire down payment on Fannie Mae loans (as with FHA).

Buyers wanting to utilize Fannie’s 97% program will need to be under contract by early November.

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