The FHA’s move to eliminate a prepayment penalty starting next year will relieve borrowers of a financial hit that’s entirely out of their control.
A conventional mortgage does have its advantages. The primary one is that with a conventional mortgage you probably won’t have to pay for the mortgage insurance upfront or for the monthly mortgage insurance you would be required to pay with an FHA loan. As of April, 2010 the FHA requires upfront mortgage insurance of 2.25% on the loan amount, regardless of how much you put down. As an example of what this would cost you, if you were applying for a $l00,000 mortgage, you would have to pay an extra $2,250 for the mortgage insurance upfront, plus your down payment and your other closing cost.