Could the New FHA Loan Reduction Help You Become a Homeowner?
The federal government just publicized changes to FHA loans that could save you thousands of dollars over the life of your loan, which take effect this week. President Obama recently announced a reduction of .5 percent in the annual mortgage insurance premiums (MIP) on 30 year loans which are backed by the Federal Housing Administration (FHA). FHA loans have been a popular choice for buyers with low down payments, high debt to income ratios or less than stellar credit. Here’s what you need to know about whether the choice is right for you.
How do FHA loans work?
An FHA loan is essentially a financial program that insures a mortgage through the federal government, to protect the lender in the case of buyer default. The Federal Housing Administration uses a network of FHA-approved lenders, who all may offer different fees, interest rates, and closing costs. Candidates for FHA loans are most frequently individuals with a low down payment saved, a high debt threshold, or credit scores in the 500s. Buyers apply through a local approved lender, and then pay the insurance in two parts. The first is an upfront payment equal to 1.7% of the loan – or $1,700 for every $100,000 borrowed. In addition, buyers pay a monthly premium on top of mortgage, interest, taxes, and insurance. Recent shifts have changed the way that monthly premiums are handled, from being related to Loan to Value (LTV) ratios to being ongoing over the life of a mortgage.
What does the savings entail?
At first glance, a .5% reduction in interest rates on the monthly premium don’t sound like much. But it translates to a savings of $818 per year or more than $14,000 over the life of a 30 year $175,000 mortgage with less than 5 percent down. In its announcement, the White House estimated that this change will impact 800,000 current mortgage holders and potentially enable another 250,000 people to afford to own a home.
Is an FHA loan right for you?
If you’re currently struggling to find the right option to finance a purchase with a low down payment, an FHA loan is one option to consider. Freddie Mac and Fannie Mae also introduced 3% down payment programs to the market, but they’re not as widely available yet. If you’re interested in learning more, now’s a great time to start the process by talking to an experienced lender.
Are you a buyer in Las Vegas who is considering what financial option may be right for you? Contact Sydnee Johnson today to discuss your situation and learn more about FHA loans and other low down payment financing solutions.