I am not sure I follow the last sentence – the 16.5% of the purchase price – paying for the entire thing – which thing do you mean? Sorry for being dense.
thanks.[/quote]
If he goes FHA and puts 3.5% down, instead of doing conforming and putting 20% down, and he invests the difference (16.5% of purchase price) into CDs (returning 3% annually), he’ll receive the amount equal to 0.5% of house price per year in interest from CDs. Which is equal to what he pays in mortgage insurance to FHA.
Caveats:
– Interest from CDs is taxable, FHA mortgage insurance is not tax deductible
– FHA comes with an up front premium
– FHA has higher interest rates
