Wow the graphic is a bit rough – i was never good at perspectives – sheesh.
Anywho – as FHA continues to try and strengthen their reportedly super low capital reserves and reduce their overall risk in their portfolio holdings, more changes to the program are about to be put into place. IE Monday April 18th.
So what changes? Let’s dig in shall we.
FHA requires a mortgage insurance premium to be financed into your loan amount and they require a monthly mortgage insurance premium as part of your payment. The financed portion, which is currently 1% of the loan amount, will not change. Woopie!?! The monthly MIP will change though.
Just in case you don’t get the whole upfront MIP – here’s how it breaks down. You pony up a 3.5% down payment, FHA requires 1% to be financed, you walk away with 2.5% equity.
Now the monthly premium is based on the loan amount. For the purpose of creating a basic example, let’s just assume we’re purchasing a home and we want to put the minimum 3.5% down. Currently the MIP is .9% per year *(ie- .9% x loan amount divided by 12months). After the 18th of April, the % will go up to 1.15%. Doesnt sound like a big jump but check it out:
FHA is basically upping their revenue by about 22% through this increase in MIP. So plenty of people agree with the changes, some people are annoyed that this is the third change to the premiums in the last 12 months, and yet others see the shift as something different – possibility.
Currently you can still purchase homes for a minimum amount down AND get private mortgage insurance elsewhere.
I actually just put together a proposal for one of our clients which compared the $ required for a conventional 5% down purchase vs. a 3.5% down FHA purchase for a 281k home. Check-out how they compare – pretty tough choice to make. Private insurance companies will surely be lowering their rates as more people will be considering larger down payments.
This assumes $2200 yearly taxes and $522 in homeowner’s insurance. Also, the last option is known as a PMI Buy-out – where we buy our way out of having to pay mortgage insurance every month. The one time premium can be paid by you or via a credit applied by your loan officer. In each of these examples I’m raising the rate just enough to cover all the costs, and in the last example, raising it enough to pay a 6k mortgage insurance premium.
Granted if you really can’t afford to take that much of your savings out for the purchase, the FHA definitely provides a lower down payment option. But If you look at the over-all picture, you’ve got some good options to measure up FHA to.
To see if what you’re qualified for or to have a professional help you compare and contrast options, give us a call.
Riano Mortgage Team
1350 Sunday Drive
Raleigh NC 27607