Quick Answer
Points reduce the rate on both loan types, but the surrounding math differs. On a conventional loan, a lower rate plus reaching 80% loan-to-value drops your PMI automatically. On FHA, the mortgage insurance premium usually stays for the life of the loan no matter how low the rate goes. For that reason, conventional often wins long term when your credit is strong. Ask Patrick how buydowns on conventional vs FHA would work for your loan.
Conventional loan points reduce your rate AND your private mortgage insurance (PMI) drops off automatically at 80% loan-to-value. FHA loan points reduce your rate, but mortgage insurance premium (MIP) stays for the life of the loan in most cases. Conventional often works out better long-term.
The money problem: you are comparing two loans where the point does the same job, lower the rate, but the insurance around it behaves completely differently. That difference is where thousands of dollars hide.
Conventional Points
The term to know is private mortgage insurance, or PMI: the premium you pay on a conventional loan when your down payment is under 20%. The meaning: points lower your rate on a conventional loan, and a lower rate plus reaching 80% loan-to-value drops the PMI automatically. The money part: one point is 1% of the loan amount, and it trims the rate roughly a quarter point, which lowers the payment and helps you build equity faster. The real-world consequence: on conventional, a buydown works twice, once on the rate and once on the day your mortgage insurance disappears.
FHA Points
The term to know is mortgage insurance premium, or MIP: the insurance on an FHA loan that protects the lender. The meaning: points lower your FHA rate the same way, but the MIP usually stays for the life of the loan no matter how low the rate goes or how much equity you build. The money part: FHA rates often run a little below conventional to start, so the starting point matters as much as the discount. The real-world consequence: a point on FHA buys a lower payment, but it does not buy your way out of mortgage insurance, and that insurance bill runs for the life of the loan in most cases.
Direct Comparison
Here is the side-by-side that matters. On a conventional loan, the same down payment and the same points get you a lower rate and a path to dropping PMI at 80% loan-to-value. On FHA, the same points get you a lower rate, but the mortgage insurance premium stays. The money part: FHA also allows seller concessions up to 6% of the price, which can fund your points, while conventional allows 3%. The real-world consequence: when a seller can pay the points, FHA's higher concession limit makes the buydown cheaper to execute, but conventional's cancelable insurance often wins the long-term race.
Long-Term Cost
The long-term math is where conventional pulls ahead. The meaning: every year you hold the loan, the conventional borrower pays less because the PMI eventually drops off, while the FHA borrower keeps paying the MIP. The money part: take a $300,000 loan, the monthly MIP that never leaves can add up to tens of thousands of dollars over the life of the loan, far more than the point savings. The real-world consequence: if your credit is strong enough to qualify for conventional pricing, points on a conventional loan usually beat points on FHA over a long hold, and the refinance out of FHA later is the escape hatch many buyers use.
Total Cost Analysis
The total cost analysis puts it all on one page: the rate, the points, the mortgage insurance, and the years you plan to stay. The meaning: the cheapest loan is not the one with the lowest rate, it is the one with the lowest total cost over your actual time in the home. The money part: model the conventional loan with points and the PMI that falls away, then model the FHA loan with points and the MIP that stays, and compare the totals. The real-world consequence: for most buyers with solid credit and a long hold, conventional plus points wins, and for buyers who need the lower down payment and the higher seller concession limit, FHA plus points is the right door in.
Ask Patrick about buydowns on conventional vs FHA
Get a straight answer on buydowns on conventional vs FHA and whether paying points makes sense for your loan.
