PMI Changes
With the declining market and increase in foreclosures we have seen Private Mortgage Insurance rates climb. We just received an announcement that the factors for Monthly PMI (the most common form of PMI) have gone up.
Why? Much like any insurance company, they do not want to pay out... since they have been paying out more in the past year with increased foreclosures they have raised rates...
(ever try to get home owners insurance near tidal waters? this is a common theme too)
What does this mean to your buyer? Increased payments of course. here are a few examples for a 200,000 mortgage with 3%, 5%, 10% and 15% down:
- 3% down (not as common) was $138.33/month NOW $175.00/month
- 5% down WAS, $131.67 per month. It is NOW $156.67/month
- 10% down Was $86.67 per month. It is NOW $103.33/month
- 15% down Was $55.00 per month. It is NOW $63.33/month
As you can see the difference is not as bad as you increase the down payment. Historically 15% down loans never go bad so there is less risk, while the lower the down payment the higher the risk, thus higher premiums.
Now more than ever, FHA is more likely to be the way for your buyers to buy a home when mortgage insurance is required (Even with the new changes in FHA MIP )
In the past I would advise that less than 10% down FHA would be the best way to go, now it is something to consider for any down payment lower than 20%. A comparison needs to be done to be sure the right program is picked for the buyer. Keep in mind that Conventional loans have interest rate add ons below a 720 credit score.... FHA does not have Interest Rate Add ons for loans at all. There are some lenders that will put their own add ons for loans they feel are risky, (sub 620 credit score is a common spot for add ons).
I have said it before: What was old is new again. FHA is still one of the BEST ways for some one to buy a home with a low down payment.
Have a great weekend
Rob
Robert Rauf
(732)740-0175
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