20% down is the way to go. Not only do you save on PMI, you will have a better chance to get a highly sought after property. You don’t want to get into a bidding situation with a FHA loan. Your DTI is great, but the seller probably won’t see past the low down payment. I would rent and try to save as much monthly as possible, maybe even putting less into 401K, but still putting in as much as employer matches. I recently shopped FHA loans and they are ridicules. For a loan of 550K – .75% ($412) monthly PMI + 1% ($5500) upfront fee added to loan. 5 year minimum PMI and 78% LTV before you can cancel PMI. You will have to provide another appraisal ($500) to remove PMI. That’s a little over 30K in the first 5 years out of pocket for not having the extra 90K down or keeping 90K liquid based on 20% down (110K)vs. FHA 3.5% down(19K). You could invest the 90K, but if the return is not better than the 5% mortgage rate you will lose even more. Also if you can borrow less then the 417K conforming limit you can save an extra .5% on interest.
