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FHA LOWERS MORTGAGE INSURANCE

March 31st, 2015 1:05 PM by Kemmer Daniel Matteson

The most attractive aspect of a loan backed by the Federal Housing Administration (FHA) is the low down payment requirement. If you qualify for an FHA loan, that could mean a down payment as low as 3.5 percent. Also, interest rates on FHA loans are the lowest they’ve been in almost two years.

The bad news is this: FHA loans do require mortgage insurance premiums (MIP), which can be quite costly. However, there is also good news: The FHA just lowered the monthly mortgage insurance requirement by one half of one percentage point. This could mean hundreds of dollars of savings each month.

For the past several years, the FHA—which insures roughly 20 percent of all mortgages—had imposed costly mortgage insurance premiums on borrowers in order to fund its cash reserves. As recently as last year, the FHA needed a cash infusion from the U.S. Treasury, but improved loan performance and rising home values increased its capital reserve balance by the end of 2014. In turn, the FHA decided that it would lower its MIP requirements by 0.5 percentage points—from 1.35 percent to only 0.85 percent for a 30-year loan with a loan-to-value ratio of 95 percent or more.

What could this mean for you? Like we said, the monthly savings could run in the hundreds of dollars. Although upfront mortgage insurance required on FHA loans remains unchanged, the monthly cost—which is the one that really matters—has been significantly reduced for FHA loans of $625,000 or less.

FHA loans have become more popular lately and these loans have helped many people buy over the last five years. Although not every borrower qualifies for an FHA-backed loan—and it may not be the right loan for many borrowers—if you do qualify, this new lower MIP is definitely good news
Posted by Kemmer Daniel Matteson on March 31st, 2015 1:05 PM

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