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FHA v. Conventional

A look at differences between rates and M.I. premiums

Sept. 9, 2010

By MortgageDaily.com staff


In addition to product, pricing and points -- one pricing engine helps originators compare mortgage insurance premiums on government-insured loans with premiums on conventional mortgages.

While there isn't much difference between interest rates on conventional mortgages and loans insured by the Federal Housing Administration, mortgage insurance premiums vary significantly.

A pricing search done Wednesday through Marksman indicated that a 95 percent loan-to-value transaction in Texas on a $150,000 property would be priced at 4.250 percent on both a conventional and an FHA loan. The rate was also the same in Pennsylvania.

But in California, the FHA rate was 4.250 percent while the conventional rate was 4.375 percent. Other states with the same pricing included Florida, Illinois, Ohio and New York.

Mortgage insurance premiums didn't vary by state, according to Marksman -- which is offered by Mortgage Daily advertiser Mortech Inc.

But the premiums did vary between conventional and government loans. Marksman claims to be the only product and pricing engine to access major mortgage insurers and their rates.

The up-front mortgage insurance premium in the given scenario for a conventional mortgage is $4,225, according to Marksman.

On FHA loans, however, the up-front premium is just $3,206.

Under new premiums recently disclosed by the U.S. Department of Housing and Urban Development, up-front premiums on loans with case numbers assigned after Oct. 3 are being cut to 100 basis points -- or around $1,425 on the transaction outlined above -- from 225 BPS.

HUD's bulletin indicated that annual mortgage insurance premiums are being raised to 85 BPS for mortgages with LTVs up to 95 percent. On loans above 95 percent LTV -- the premiums will be 90 BPS.

Mortech quoted monthly mortgage insurance premiums of $111.62 on the conventional loan.

An online mortgage insurance calculator from PMI indicates that no annual premium is required using private mortgage insurance under its "super single" plan. The up-front premium in that case is 280 BPS. PMI claims borrowers on the $150,000 transaction could save more than $2,500 over a five-year period on a conventional loan.

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