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The Good News and Bad News on Mortgage Financing

There are several changes that went into effect at the beginning of April that may affect you the next time you purchase or sell your home.  Let’s start with the bad news: FHA has once again increased their monthly Mortgage Insurance (M.I.) premiums by .10%.  This means that starting April 1, 2013 all new FHA insured loans will carry a monthly M.I. of 1.35%.  Just to put things in perspective this M.I. rate was only .55% at the end of 2010 so it has more than doubled in just over 2 years.  On a $250,000 loan the monthly M.I. would now be $281.25 compared to only $114.58 back in 2010.  FHA also carries an upfront Mortgage Insurance Premium of 1.75% ($4375 on a $250,000 loan) which is allowed to be financed into the new loan amount.  As a result of these changes, FHA insured loans have become more expensive to a consumer and are forcing people to think twice about obtaining one when purchasing a new home.

The good news? FHA is not the only option for someone who has very little to put down for a purchase.  Due to recent gains my Fannie Mae and the market stabilizing, we are now able to offer clients 97% financing on a Conventional loan.  Conventional loans also carry M.I. when putting down less than 20% but the premiums are not as high as those on an FHA insured loan.  The monthly Mortgage Insurance premium for a conventional loan at 97% would be around .88%.  Using the same loan amount as above of $250,000 a consumer would have a monthly M.I. payment of $183.33.  Conventional loans don’t require an upfront M.I. premium so the loan amount would be less compared to an FHA loan.

With that being said, why would someone continue to use FHA as a source of financing instead of conventional? Well, there are several reasons as to why FHA is still a viable option for some consumers which include the following: FHA allows for lower credit scores than Fannie Mae; allows for higher debt to income ratios which means people who make less money may have a better shot with FHA; allows someone to finance a purchase at 96.5% after having a short sale 3 years ago; interest rates are typically lower than conventional loans.

FHA has always been a great solution for consumers who are looking to put the least amount down as possible but now with the resurgence of Fannie Mae it appears that Conventional loans could be a great option as well.  The fact that we now have more lending options for the consumer is a sign that the market has improved and this will continue to allow people to experience the American dream of owning a home! To learn more about our company and mortgage products, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email prioritydan@bellsouth.net. Please visit www.prioritylendingcorp.com

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