Why Now is a Great Time to Buy!
Many first time home buyers choose to use FHA loans to finance their home purchase. Compared to conventional loans, FHA loans offer several advantages:
- Lower down payment
- Lower interest rates
- Lower credit scores
One disadvantage of jumping into a home purchase with a lower down payment is that the lender will require the payment of a fee called a mortgage insurance premium – or MIP. This fee becomes part of the monthly payment when the down payment is less than 20%. Before 2011 the mortgage insurance fee could be waived once the homeowner reached 20% equity. However, with the change in 2011 the mortgage insurance remains in place for the life of the loan.
Now for the good news! The FHA announced changes to its mortgage insurance premiums. The premiums are being LOWERED by .5% annually. Along with a lower up front charge paid at closing the savings for the homeowner choosing an FHA loan are significant. The chart below shows that over 30 years a homeowner could save $18,000 on a $200,000 loan!
Why would FHA make this change? For several reasons:
- Lower fees will sway more lower risk home buyers to choose FHA loans over conventional
- Lower fees will enable more borrowers to qualify for a loan and purchase a home
- Lower fees are good for the overall health of the housing market
What it may mean for you?
Current renters may be undecided whether home ownership is in their immediate future. With the reduction of these fees and the impact to their monthly payment they may qualify to purchase a home. Qualified buyers who were leaning toward using a conventional loan may find the lower MI fees enough of an inducement to choose FHA instead. These buyers can thus take advantage of the program benefits of FHA loans. And FHA likes to have a good mix of low and higher risk borrowers to keep the prices on their loan products low.
To start the process of buying your first home contact your lender, or if you are in the Huntersville area I recommend Pamela at Sun Trust.
Diane and William Kradel