FHA vs conventional loan: which is right for me?

FHA is insurance, not a pile of money. A private lender makes the loan, and the federal agency insures the risk in exchange for the fee, which is what lets FHA accept 3.5 percent down and credit histories a conventional file would struggle with. The insurance is priced as an upfront mortgage insurance premium plus the monthly mortgage insurance premium.

A conventional loan is a private mortgage that Fannie Mae or Freddie Mac agrees to buy, and the price of the underwriting depends on the down payment and the credit score. The low down payments are real, and below 20 percent down, private mortgage insurance covers the lender, with the understanding that the buyer usually cancels the premium once the equity clears the 20 percent mark or the balance drops to 80 percent of value.

The two can look close at the closing table and diverge from there. FHA: lower door, more forgiving credit, but the mortgage insurance runs for the life of most 30-year loans. Conventional: the credit and the down payment improve the rate, and the private insurance is the one that goes away, so the conventional loan can end up costing less by the fifth or seventh year, exactly the point where many buyers move again.

The situations FHA fits: a buyer with a thin down payment, blemishes on the credit that will heal, or a file that does not otherwise clear the conventional gate, and a plan in the home for the years the math works. The situations conventional fits: a buyer with income, a down payment that a lower rate rewards, a plan that reaches the equity point, and a credit profile that gives the lender a clean reading.

Neither is the answer by itself. The loan that fits is the one that closes, on an amount the buyer can afford now, with insurance that behaves for the years the buyer will live in it. One lender, the same week and the same property, at two estimates, settles the question faster than any advice column.

Georgia does not set a rate on the two, and it does not tax them differently; the rate is the lender's quote and the programs are standard. The Georgia part is the figure next to the rate: the tax of the county on that particular parcel, the homeowners premium for that home and that location, and the figures in a Georgia attorney's title and closing settlement. The estimate comparison has to be run on the actual county and address numbers, not on any state average.

Georgia's state housing agency and some qualified lenders run down payment assistance for first-time buyers, with limits and availability that change. A first-time buyer should ask both lenders what assistance lines up with an FHA or conventional file, because a program can make one door cheaper.

Georgia closings run through a single attorney settlement with the title, the county fees, the transfer tax and the recording, and counties differ in the details. Both loan products reach the same settlement process, and the same title work happens either way; the number that matters is what the mirrored costs add to each closing statement.

Get lender estimates, not anecdotes: the same week, the same home, the same price, side by side, one in each lane. Compare the monthly and the closing costs, and the behavior of the insurance over time, not the two famous numbers.

Judge the insurance, not the rate. FHA's mortgage insurance by default runs the life of the loan; the conventional premium is designed to drop to zero at the ownership boundary. Run the comparison at the 5-year and 7-year mark, the span where most buyers move again.

The difference in credit is built into the two underwriting runs, so let the lender test both on your actual score before any conclusion. The qualifying is not the same as a price difference.

Keep the file quiet from application to closing. A new line, a new purchase, a changed job during the final weeks cause both programs the same amount of trouble.

Mention the state's down payment help to the lender before concluding. When a program applies, it changes the cash-to-close math, and that can tip the door one way.