Changes at FHA (April 1, 2013) Means Private MI is More Competitive for your Bay Area Purchase or Refinance

Changes at FHA (April 1, 2013) Means Private MI is More Competitive for your Bay Area Purchase or Refinance

Changes at FHA Means Private MI is More Competitive than Ever

As spring home buying season approaches, borrowers, lenders and real estate professionals should take a fresh look at using private mortgage insurance for the purchase or refinance of a home with less than a 20 percent down payment. In recent years, loans guaranteed by the Federal Housing Administration (FHA) were the preferred option for first-time and low- to moderate-income borrowers. However, for nearly all borrowers who can make more than a 3.5 percent down payment on a loan up to $625,000, private mortgage insurance now is significantly less expensive than FHA, making it the smarter, more affordable financing option for many borrowers.

Increases in FHA Premiums

Effective April 1, 2013, FHA will increase its mortgage insurance premiums for the third time in two years, raising the average borrower’s required mortgage payment by approximately $130 a month.

FHA’s higher fees affect all purchase loans and come at a critical time in our housing recovery. Analysts predict refinance activity will wind down in the second half of 2013, just as higher FHA pricing begins to impact the recovering home purchase market.

Genworth MI 1How much money can borrowers save by going with a private mortgage insurer like Genworth U.S. Mortgage Insurance? On a $170,000, 30-year loan, borrowers choosing FHA would have to pay nearly $3,000 more upfront than the comparable Genworth coverage on a loan with a 5 percent down payment, due to FHA’s required 1.75 percent upfront premium. And this is in addition to FHA’s higher monthly premiums. In that same scenario, a borrower with a 760 FICO score who puts at least 5 percent down would save at least $77 per month using Genworth over FHA. Taken together, the borrower using Genworth mortgage insurance would pay at least $8,600 less than a borrower with an FHA loan over a five-year period.

 

The price advantage of Genworth MI coverage over FHA is even greater when putting 10 percent down. Assuming the same scenario, the monthly savings using Genworth would amount to more than $98, and more than $9,800 over the same five-year period.

 

FHA Ending MI Cancelability

Genworth 2In addition to the price increase, FHA has announced that beginning June 3, it no longer will cancel collection of MI premiums on 30-year loans with a loan-to-value (LTV) ratio above 90 percent. In the past, borrowers using FHA were allowed to cancel annual insurance premium payments once their debt fell below 78 percent of the original principal balance. Now, FHA will require borrower to pay mortgage insurance premiums for the life of these loans.

In contrast, Genworth mortgage insurance remains cancelable. With an appraisal, Genworth MI can be canceled when borrowers reach 20 percent equity if they are current on payments and other requirements are met. And borrowers are eligible for automatic termination when the loan amortizes to a LTV of 78 percent, if they are current on payments and other requirements are met. In a market where home prices are beginning to increase, this is an attractive benefit of private MI, providing borrowers with another potential monthly savings differential that could last for many years.

 

Private Mortgage Insurance: The Clear Choice for your Bay Area Purchase or Refinance

These changes have made the choice between private mortgage insurers like Genworth and FHA clearer than ever before. Genworth is the winner on price in most instances, and can be canceled when the borrower meets certain criteria. By contrast, the FHA is raising rates and ending cancelability. As the housing market stands poised to again fuel our nation’s economic recovery, private mortgage insurers like Genworth are helping put more individuals in their homes – for less – every day.

I’m Here to Help You With Your Purchase or Refinance in 2013

I love to work with my Bay Area readers that find my information on the Mortgage and Housing Market helpful in your decision making process. As a Mortgage Planner at Vintage Mortgage Group in Pleasanton, I am in a unique position to help you capitalize on historically low interest rates. Contact me below today for a free consultation.

 

 

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