Conventional loans let you buy points and drop PMI automatically at 80% LTV. FHA loans require mortgage insurance for the life of the loan in most cases, making conventional the better long-term value for most buyers.
The combination of points and permanent MIP on FHA means conventional loans often come out ahead when you plan to stay in the home long enough to benefit from the rate reduction. Patrick Kevin Fagan can help compare both scenarios for your specific situation.
Conventional Loan Points
On a conventional loan, buying points lowers your rate permanently. PMI drops off automatically once you reach 80% loan-to-value. This means your monthly payment drops twice: once from the points and again when PMI falls off. Patrick Kevin Fagan helps San Antonio homebuyers evaluate the combined savings of points plus PMI removal on conventional loans.
FHA Loan Points
FHA loans also allow points. The rate reduction works the same way. But FHA requires an upfront mortgage insurance premium (UFMIP) and annual MIP that stays for the life of the loan on most new FHA loans. That ongoing MIP cost offsets some of the savings from buying points. Patrick Kevin Fagan explains how FHA points work for buyers in San Antonio and the Texas Hill Country.
Comparison
When comparing conventional vs FHA with points, look at the total cost over your expected time in the home. Factor in the PMI removal on conventional versus the permanent MIP on FHA. The gap widens the longer you stay. Patrick Kevin Fagan runs side-by-side comparisons for clients throughout greater San Antonio.
Long-Term Analysis
Over 5 to 10 years, conventional with points almost always wins against FHA with points. The combination of a lower rate plus eventual PMI removal creates significant savings. FHA makes sense primarily when credit scores are lower or down payment is below 5%. Call 210-317-6514 to discuss your specific situation.
