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Blake Kleckner

FHA's 2015 Grand Surprise! Lower Mortgage Insurance Premiums Are Here

Friday, February 6, 2015 - Article by: Blake Kleckner - DiVita Home Finance - Message

Well, it's about time! The Department of Housing and Urban Development (HUD) finally got some smarts and made a decision that was not only great for all homebuyers and homeowners, but also for the preservation of the FHA. After 4 mortgage insurance (MI) increases from .55% to 1.35% annually in just 2-1/2 years, the streak finally ended on 1-26-15 with a significant MI decline!

There were, essentially, 2 reasons for this decision. First, Fannie Mae and Freddie Mac reduced their conventional loan down payment requirement from 5% to 3% to compete with the FHA's 3.5% late last year, which, of course; will eat into its market share. Second, and more importantly, FHA MI was entirely out of whack and uncompetitive with private MI.

Consequently, HUD took the bold step of reducing FHA MI to .85% annually for buyers putting less than 5% down on their home purchases, and homeowners who refinance and have less than 5% equity in their homes, for 30-year fixed rate loans of $625,500 or less depending upon the counties in which they live. For buyers who can make down payments of at least 5%, and homeowners who have 5% or more equity in their homes, MI will be .80% annually. This will result in HUGE reductions in monthly FHA MI for the vast majority of borrowers--from 30% to 41%!

To put this into proper perspective, if you purchased a $350,000 home in April of 2011 when the FHA interest rate for a 30-year fixed rate loan was about 4.75%, and MI was 1.15% annually, your P&I payment with 3.5% down would have been $1,793/mo. plus $324/mo. for MI, totaling $2,117/mo. By refinancing today, this payment can be reduced to $1,710 ($1,492/mo. P&I + $218/mo. MI), saving you $407/mo.!

Chances are, though, your home may have appreciated enough in the past 4 years, or possibly even in the past 2 years, to completely eliminate FHA MI by refinancing into a conventional loan. I have a client who purchased his home with a 3.5% down payment FHA loan in December of 2012, and he refinanced into a conventional one just a year later! His home had appreciated $107,000 in value, or 23%, in only 1 year!

Regardless of whether you refinance your current FHA loan just to realize the sizeable savings because of the incredible monthly MI reduction, or you can refinance out of it into a conventional loan and save even more, now is the time to take advantage of this tremendous opportunity! Interest rates are still at historic lows, but they won't be there much longer.

If you would like to know whether or not either of these refinance alternatives can work for you, please contact me at 626-644-2020. I will gladly provide you with an analysis of your loan options at no cost or obligation.

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