What is the actual difference between FHA and conventional?
An FHA loan is insured by the Federal Housing Administration, which lets a lender accept lower credit scores and a higher debt load. A conventional loan carries no government insurance, so the lender takes more risk directly and wants a stronger file in return.
That single difference drives everything else. FHA is more forgiving on the way in. Conventional is usually cheaper once you are in. Which matters more depends entirely on where your credit sits today and how long you plan to keep the loan.
Why does mortgage insurance decide this more than the rate does?
On most FHA loans, mortgage insurance stays for the life of the loan. On a conventional loan it comes off once you reach 20 percent equity. That is the part that gets missed, because it does not show up in the payment you get quoted on day one.
Two loans can start within a few dollars of each other monthly and diverge substantially over the years you actually hold them, purely on that. So comparing opening payments tells you almost nothing about which loan costs less.
This is not an argument against FHA. If your credit is still recovering, FHA may be the only thing available, and owning at a slightly higher long-run cost generally beats renting while you wait. It is an argument for knowing what you signed up for, and for treating a refinance as part of the plan once your credit and equity have caught up.
What is a seller-paid buydown and when is it worth asking for?
A seller-paid buydown is the seller covering the cost of temporarily lowering your interest rate, usually for the first year or two. A 2/1 buydown, for example, drops your rate two points below the note rate in year one and one point in year two, then it settles at the real rate.
It comes up most when a home has been sitting. A seller who has already watched their listing go stale is often more willing to fund a buydown than to cut the price again, and the buydown frequently helps you more per dollar than the equivalent price reduction would.
Whether that is true on your specific deal is arithmetic, not opinion. I will run the buydown and the price reduction side by side so you can see which one actually puts you ahead. I have no interest in pushing one over the other.
So which one should you choose?
Run both. Any lender can produce a side-by-side comparison showing the total monthly payment, the cash you need at closing, and what each loan costs you over five and ten years. If someone will not show you that, ask a different lender.
What I would push back on is deciding this from a rate quote alone. The rate is one input among several, and it is the one most likely to change between now and closing anyway.
This is not a commitment to lend. All loans are subject to credit approval, income and property verification. Rates, terms, and programs are subject to change without notice. Nook Lending is powered by MPA Home Loans. Jennifer Ferrara, Loan Officer, NMLS #2781982. MPA Home Loans NMLS #2778343. Equal Housing Opportunity.
