This is a guest post by Matt Baker. Matt Baker is one of the partners of the Bookspan Baker Team at HomeStreet. He has over 18 years of experience helping homeowners through the mortgage process. Matt also has a beautiful wife and two daughters, and lives in Scottsdale. He loves being able to provide home loan services to Arizona families.
Lots of people have been asking me about the FHA (Federal Housing Administration) lowering the Mortgage Insurance Premium (MIP), and with good reason. The FHA is a program that has been in place since the 1930’s and is designed to help stimulate the housing market by making home loans accessible and affordable. So often, well at least in the last five (5) years, we have heard so much news in the negative light specifically in regards to loans costing more and more. The lowering of the FHA Mortgage Insurance is one thing that definitely flips that trend.
Effective Monday, January 26th, 2015, the FHA is lowering the Mortgage Insurance Premium from 1.35% annually to .85% annually. Annually means that you pay your premium monthly, which is kind of confusing, but you also pay this premium as part of your mortgage payment. FHA allows you to buy a home for as little as 3.5% down payment as well as allows the buyer other favorable options to qualify. These favorable options include credit scores as low as 600, higher debt-to-income ratios, and, in some cases, even allows other down payment assistance programs in combination with your FHA loan. The lowering of the FHA premium will help in a couple of ways.
1) First, it will help the new home buyer afford more home for the money. Lowering your Mortgage Insurance Premium will save a buyer somewhere in the $30.00 to $80.00 per month range depending on the price of the home. That adds up over time! For a prospective buyer that could equal an additional $50,000 to $60,000 in additional home you previously could not qualify for, but now can.
2) Second, this will help people who have bought a home in the last two years. Aside from the lowering of the Mortgage Insurance Premium, rates are also at their lowest point since the summer of 2013. So, there is a chance to not only save in Mortgage Insurance, but also save on the rate, as well. There is a loan that the FHA offers called a Streamline that requires no credit qualifying, no appraisal, and with no costs rolled into your loan. That allows you to start saving money right away.
For these reasons, FHA is now a better option, especially when you have lower credit scores, than some Conventional loan options. I expect this, along with other market factors including great low rates and the current inventory of homes holding steady, to make for a strong, healthy real estate market in Maricopa County in 2015!