FHA or Conventional loan with 5% down?

I was offer by my mortgage agent with 2 option, either FHA or Conventional loan with 5% down payment. I have got the Good Faith Estimate for both.For FHA: Mortgage rate is 4.500%, but have higher closing cost and insurance. Monthly payment will be about $1520.For Conventional loan: Mortgage rate is 4.750%, have lower closing cost since there's no upfront mortgage insurance and lower insurance rate. Monthly payment is $1470.Closing cost for FHA is $14000, and $12000 for Conventional loan. Closing cost is high since I live in NYC.I'm so confused since we are first time home buyer. Conventional loan has a bit higher rate but still less on monthly payment. On the other hand FHA has a little bit lower rate, but has higher monthly payment due to higher mortgage insurance. I was told by my agent that the FHA require you to pay the mortgage insurance for at least 5 years. After 5 years, If mortgage amount is at 78% or lower of the original value of the property after 5 years from purchase, mortgage insurance comes off. On conventional loan you need to prove, by ordering and paying for appraisal, that your loan is at 78% or lower of the value of the property at the time of request.From what I see conventional loan is better, but people keep telling FHA is better because it's a government loan. What do you think? by sana_t_980 from Chicago, Illinois. Jul 28th 2011 Reply