The U.S. Federal Housing Administration (FHA) announced that it is cutting annual premiums for Mortgage Insurance from 0.85% to 0.60%
What is an FHA mortgage?
FHA, which is a part of the Department of Housing and Urban Development, exists to fulfill the mission of providing homeownership opportunities to creditworthy buyers that may be overlooked by conventional lenders. FHA is a great option for Orange County first-time buyers, borrowers with lower to moderate income, or borrowers with less than perfect credit scores. With FHA loans, Orange County home buyers pay mortgage insurance to protect FHA’s funding in exchange for down payments as low as 3.5 percent. The lower premiums will come after FHA’s Mutual Mortgage Insurance Fund has recovered from the hit it took in the aftermath of the housing bust.
“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” Housing and Urban Development Secretary Julián Castro said in a statement
What does this mean for Orange County Home Buyers?
The planned cuts will lower the FHA annual premiums (monthly) from 0.85% to 0.60% of the loan balance, allowing FHA to get back on track in helping borrowers to realize their dream of owning a home. There are two types of mortgage insurance to consider. The first is the Upfront Mortgage Insurance Premium (UFMIP), which is a one time fee built into your loan amount (LA). The second, is the Mutual Mortgage Insurance (MMI) that is a monthly fee paid on top of your monthly mortgage payment. Let’s compare the current MMI to the new MMI available at the end of Jan 2017, assuming an Orange County home buyer is purchasing a condo in Mission Viejo for $400,000 with the minimum down payment of 3.5%:
Purchase Price: $400,000
Down Payment: 3.5% = $14,000
Upfront MIP (1.75% * LA) = $6,755
Total FHA LA: $392,755
Current MMI: (.85% * LA / 12months): $273.42 Vs. New MMI: (.6% * LA / 12mo): $193.00
If you don’t have your calculator handy–that is a savings of $80.42! That is a very nice savings for someone buying a home in Orange County with an FHA loan.
FHA is not just for Orange County First Time Home Buyers
It’s important to note that FHA is not only for first time home buyers. The FHA loan limit in Orange County is $636,150.This means that anyone looking at homes priced up to $660,000 can take advantage of FHA’s low 3.5% down payment requirement and benefit from the new lower mortgage insurance premiums.
Bottom Line:
When the cost of mortgage insurance is reduced, more and more responsible borrowers are suddenly eligible to purchase a home with FHA financing. The cost in monthly savings alone is something to get excited about. 2017 may shape up to be a very good year for buying a home in Orange County.
Authored by Tim Storm, an Orange County, CA Loan Officer. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OCHomeBuyerLoans.com. I will prepare custom loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.