FHA Cost Increase Drive Bay Area Home Buyers to Conventional Alternatives

FHA Cost Increase Drive Bay Area Home Buyers to Conventional Alternatives

Recent FHA premium increases should remind real estate professionals and potential home buyers with less than a 20 percent down payment to consider private mortgage insurance as a competitive and affordable alternative to an FHA-insured loan.

On April 9, FHA increased its mortgage insurance premiums again. In fact, over the past 18 months, FHA’s insurance premiums have risen significantly, increasing a typical borrower’s mortgage payment by $95 a month. The agency’s annual premiums have more than doubled since 2009. Specifically, FHA raised its annual mortgage insurance premium (MIP) by 0.10 percent, while upfront premiums (UFMIP) also were increased by 0.75 percent (from 1.00 to 1.75 percent).

More Changes to Come From FHA?

To shore up its insurance fund, even more policy changes may be in store for FHA. Recent reports have shown that FHA is dealing with an unprecedented increase in mortgage delinquencies and defaults, and the agency’s insurance fund is severely under-capitalized. Some studies, including one from the agency’s independent auditor, suggest there is at least a 50 percent chance that FHA will require a taxpayer bailout.

These changes may make obtaining an FHA mortgage more costly than a comparable conventional mortgage backed by private mortgage insurance. Consider the chart below, provided by Genworth Financial. On a $170,000 mortgage loan, borrowers who make at least a five percent down payment and use private mortgage insurance can save over $7,000 over the life of the loan compared to FHA. Such savings can mean that many home buyers can save thousands with private mortgage insurance compared to FHA loans, with lower monthly mortgage payments and higher equity from closing day forward.

While FHA remains in a precarious financial situation, private mortgage insurance is well-positioned to take on new risk. As a result, private mortgage insurance is more competitive than ever with FHA, and its affordability and additional benefits are certainly worth considering if you’re looking to buy a home.

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

I love to work with 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 in 2012. Contact me below today to help you with your purchase or refinance.



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