The cost of FHA home loan will go down $400 to $600 per year for the average buyer on January 27, 2017.
Per Bob Silva, Loan Office with V.I.P. Mortgage, "FHA has lowered their monthly Mortgage Insurance premium to 60 (.60%) basis points of the loan amount. This is a reduction of 25 bps and if you compare with conventional financing the minimum down payment is 3.5% compared to 5% for Conventional. This really brings FHA back into the fray considering that you would end up with a better interest rate and a substantially lower payment compare to Conventional monthly Mortgage insurance which currently is hovering around 125 basis points (1.25%)."
When shopping for a loan, a buyer will be able to borrow more on a conventional loan. However if withing the FHA loan limits the 3.5% down payment for a home loan is attractive to many buyers. Per Siva, "Keep in mind with the new loan limits you are capped at $279,450 in Maricopa County (Arizona) and the mortgage insurance is for life of loan as long as you stay in FHA. You would have to refinance down the road into a Conventional loan to get rid of the monthly mortgage insurance premium but for some folks this makes sense to initially get into a property where otherwise they wouldn’t qualify due to the higher mortgage payment."
Although mortgage rates have increased from 3.6% in 2016, with rates still in the low to mid 4% range in 2017 there is still a great opportunity to buy while rates are still closer to historic lows.