As of January 26, 2015 new borrowers who apply for an FHA mortgage will receive reduced mortgage insurance premiums. The announcement comes as part of a plan to appeal to first time home buyers and stimulate the housing market. The impact is significant; according to the Federal Housing Administration, the Department of Housing and Urban Development “estimates these lower premiums will save more than two million FHA homeowners an average of $900 annually and spur 250,000 new homebuyers to purchase their first home over the next three years.”
The rule only affects those mortgages with case numbers assigned on or after January 26, 2015. So if you’ve not yet closed on your loan, or if you are in the process of purchasing a home, make sure you know the important stipulations of this exciting announcement!
What is mortgage insurance?
Mortgage insurance, or home-loan insurance, is an insurance policy, usually paid by the buyer, which protects lenders against defaults on housing loans. It is required for people who put less than 20% down at the time of the home purchase. As of January 2013, FHA mortgages now carry mortgage insurance for the life of the loan. For a conventional loan the insurance can be cancelled when the loan is scheduled to reach 78% of the original purchase price of the home. This does not necessarily happen automatically, though, so it’s something to keep your eye on and talk to your lender about. It’s also possible that the insurance can be cancelled before this scheduled date if the home is appraised and it is found that, because of appreciation, the loan balance is less than 80% of the home’s value. This requires a good history of on time payments. If you have questions about your mortgage insurance and how long you need to pay your premiums, talk to your loan officer.
How will these changes affect my monthly payment?
January’s change reduced the annual premiums new borrowers will pay by a half of a percent (from 1.35% to .85%). From the press release, the FHA states that the “reduction will significantly expand access to mortgage credit for these families and is expected to lower the cost of housing for the approximately 800,000 households who use FHA annually.”
So in estimation with a $200,000 dollar home you’d save something like $75 a month—around $900 a year.
I already have an FHA case number, but have not yet closed on my loan. Can I take advantage of these new rates?
Possibly. A lender may be able to cancel your existing number and get a new one assigned that is dated after January 26th. Contact your lender as soon as possible to see if this will work for you. Sadly, if the mortgage has already closed, you are locked in and can no longer take advantage of these new rates. It may be possible to refinance, though, so contact your mortgage broker to see if this makes sense for you.
The lowered premiums will only apply to forward loans (not reverse mortgages). Also, they will only apply for mortgages with a loan span of greater than 15 years—so if you’re going for a shorter 15 year loan, you won’t qualify.
Even though there are a few specifics, this change will affect many new home buyers. It’s an exciting time to be in the housing market, and this change makes it all the more affordable to buy your first home. Take advantage of these great rates and start looking today!
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Nice newsletter. Good article. Good information. Thank you. Carol
For conventional financing, borrowers with scores at 740 or anywhere above generally receive the same loan pricing (rate and cost). That being said, the better your credit the higher your chances of receiving loan approval with high debt to income (up to 50%) or high loan to value (up to 95%) which can be a major benefit when applying for a new loan. For Jumbo financing, borrowers with credit scores above 800 are generally rewarded with both better pricing and easier guidelines. There are no situations where better credit is a negative when obtaining new financing so we should all continue to strive to reach and then stay in the 800’s.
What are the advantages of a score over 800
Thank you Mike for this information. As a residential realtor the information that you provide is crucial to a successful transaction for my clients. You are indeed a pleasure to recommend to all of my clients. You are so professional, thorough, conscientious and pleasant to work with. !!
Hi Dane! Wanted to make sure I'm clear on this. Am I right in saying that on whichever remodel is done you still take a loss rather than an increase in value - the ROI will never exceed 100% of cost?