At the height of the housing crisis, the FHA took quite a hit. Forclosures soared, which put a strain on the pool of mortgage insurance funds borrowers contributed to. In an act of self-preservation, a big hike in FHA mortgage insurance was announced - all the way up to 1.35%. If you were borrowing $200,000, that would mean an additional $2,700 a year in mortgage insurance or $225 a month for which you'd have to qualify!
Suddenly, FHA - which had always been one of the most popular paths to home ownership for many first timers - became too expensive for the very people it sought to serve. With lending requirements tightening up throughout the industry, first timers pretty much took a seat on the sidelines, and that's where they have been for half a dozen years.
But now, starting this month, FHA is reducing the mortgage insurance requirement back to .85%. That would be $1,700 a year on that $200,000 mortgage or $142 a month. The resulting reduction in total monthly payment makes it possible for more people to qualify for more house than they have in the past and should bring many of those marginalized first timers back into the market.
FHA mortgages remain a great deal for Triad area homebuyers. The minimum down payment is just 3.5% of the purchase price and the current interest rate is running about 3.5%. Let's take a look at how the financial numbers might work on a $200,000 home purchase with a minimum down payment FHA mortgage.
Purchase Price: $200,000
Down Payment: $7,000. Also due at closing is the upfront portion of the FHA Mortgage Insurance of 1.75% or $ 3,378, as well as funds to set up impound accounts for taxes and insurance and some closing costs. To get this mortgage you'd probably have to come to closing with about $13,000 - OR - find creative ways to cover the additional upfront fees without digging into your own pocket (and there are ways).
Mortgage Amount: $193,000
At 3.5%, that would require a month principal and interest payment of $836. The ongoing mortgage insurance premium would add $137 and we could estimate your monthly impound contribution for taxes and insurance at $175 for a total payment of $1,148.
Of course, you still have to qualify for the mortgage, but FHA has continued to ease up on the reins and now are looking for FICO scores in the 580 range and up.
FHA is not he only mortgage avenue that has become more accessible. Fannie Mae and Freddie Mac also have programs requiring as little as 3% down, and there are always special programs running locally to make that first time home purchase easier.
The most important thing is to get busy and get into this housing market while rates and prices are low. They won't stay that way. And the first step to getting involved is to find a expert who knows what programs are available and can help you find the one that is right for you. For that, you need look no further than The Vincent Group at GreatNest. Our no pressure, consultative approach to helping people buy houses has brought high praise from our clients, as you can see HERE.
GreatNest and The Vincent Group is a full service real estate company charging a low set fee instead of a percentage commission. We serve buyers and sellers in Greensboro, High Point, Winston-Salem , Summerfield, Oak Ridge, Jamestown and surrounding areas. You can reach us at (336) 790-5210 or by emailing Steve Vincent. Visit our website: greatnest.com.