FHA Reduces Mortgage Insurance Premiums .28%
FHA loans have made themselves even more interesting compared to conventional loans. MIP (mortgage insurance premium) was historically just under what conventional PMI rates were is on conventional loans. Typically on a 95% loan, PMI was around .97% to 1.09%. Contrasted with the mortgage insurance for FHA being around.88%. Now FHA has changed the game, they have reduced their mortgage insurance to .6%. Couple that with the fact that the rates for FHA are historically less than conventional rates, the resulting payment that is now created from an FHA loan is usually very attractive. The only disparity is, that an FHA loan has a 1.7% funding fee that gets added to the loan upfront. That is tacked on to the loan amount, so it’s not something that the borrower has to pay at closing, but it is a real financial cost to get added to the loan. But typically, on a $200,000 mortgage, the payment difference can be as much as $100 a month cheaper using FHA. We have historically found it advantageous to steer people to conventional due to the fact that conventional PMI can be eliminated when the equity in the home reaches 20%. Whereas, with FHA, the MIP will remain in definitely. The options can be confusing, it’s always best to have a knowledgeable person steer you through the process. There are tax advantages that can’t be ignored as well. The variable that’s assumed for property appreciation plays a very large role in determining which is the best approach.