UNDERSTANDING FHA LOANS GOING FORWARD

FHA LOANS OFFER 3.5% DOWN PAYMENTS WITH MORTGAGE INSURANCE:   Before the great mortgage implosion, private lenders seemed to be falling all over themselves to get money lent to anyone who wanted it, even if you were just one day out of a bankruptcy. Then the wheels came off and there had to be a way to help good people who maybe did not have the highest credit or a lot of money for a down payment.  People seemed to welcome back FHA loans as if it was a long lost friend.  The President of the National Association Of Realtors, Gary Thomas, recently testified before the Senate Banking Committee regarding FHA. Click here to read more about his thoughts on FHA Loans  He said FHA came to the rescue when the housing market needed it and that the housing crisis would have been much worse if that program had not been there.

But now that honeymoon seems to be over.  Due to a congressional mandate regarding the FHA insurance pool, FHA has had to raise the Mortgage Insurance Rate several times in the last couple of years and they are set to do it again.  However, this most recent increase is only 1/10th of 1% so it will not have much effect on monthly payments.  The big concern that has everyone yelling "The Sky Is Falling!" is that FHA is on the verge of implementing a policy that will make FHA Mortgage Insurance permanent throughout the life of the loan.  It will not go away after the loan balance hits the 78% loan-to-value mark like it did in the past.

So let's try to put this in some perspective.  Again, the MI rates are going up very little this time around.  As for the lifetime MI, it takes an average of around 10 years of regular payments to get an FHA loan down to where the principal balance is below 78% and the MI would drop off.  Most buyers move on an average after only 7 years (and they refinance more often than that) which means most FHA borrowers will not even have to worry about the lifetime MI.  So FHA loans are still a very effective tool for many buyers.

Having said that, we are also seeing an increase in conventional loans.  Most conventional loan programs now allow for 5% down and the Private Mortgage Insurance companies have much better PMI rates then FHA.  I have seen an increase in some form of an 80% conventional 1st mortgage with a 10% 2nd loan to avoid PMI altogether.  Another alternative is that CHFA (Colorado Housing Finance Authority) has come out with a 97% Conventional loan with no MI and the rates are not that bad.

So the bottom line is that the changes to FHA loans are not as drastic as they may seem and conventional products are now able to provide more buyers with a good alternative to FHA.

As always, feel free to contact me with any questions.

		Mark Cooper Coldwell Banker Southeast Metro at DTC 8490 E CRESCENT Pkwy Ste 100 Greenwood Village, CO 80111 afccoop63@gmail.com www.come2colorado.com 303.843.1545