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Lower Mortgage Insurance Rates Coming | Easier To Buy First Home in Charleston SC
Buying your first home, or any home with less than 20% down just got a whole lot easier. Government-backed home loans like FHA will soon be less costly for first-time buyers to come up with a down payment or to afford private mortgage insurance if the Obama administration has their way. Early last week Washington D.C. announced that the premium that borrowers with an FHA-backed home loan must pay for mortgage insurance will be dropped to 0.85% from 1.35% by the end of January.
By doing so it is estimated to save the average home buyer $900 a year, as well as help save money for homeowners looking to refinance their mortgage the home have less than 20% equity.
Coupled with the big news last month that Fannie Mae and Freddie Mac would be adopting new guidelines on down payments down from a minimum of 5% to 3% this bodes well for the real estate market. “These two changes between the FHA, Freddie Mac and Fannie Mae are a huge signal to the market that it’s OK to lend to first-time home buyers again,” said Chris Brand, broker-in-charge Brand Name Real Estate.
According to NAR, first-time buyers accounted for 31% of all previously occupied homes bought in November. That’s well below the 40% that has been historically common.
For most, affordability still remains the largest hurdle because they have insufficient savings or poor credit — hurdles that could keep them from benefiting from the recent loan policy changes.
Here are three things to keep in mind if you’re considering applying for a home loan backed by Fannie Mae, Freddie Mac or guaranteed by the FHA:
And the rate cut will do nothing to change the underwriting requirements for FHA-backed loans.
Not all borrowers will qualify for the 3% down payment on a home loan guaranteed by Fannie Mae and Freddie Mac. Very high credit scores will be what is expected to even be considered.
Under the terms announced last month, borrowers must have enough income to afford the monthly payments. And the rate is only good on homes that will be used as the borrowers’ primary residence.
Freddie Mac’s version of the loan program also requires that borrowers earn less than the median income.
– FHA, Fannie Mae and Freddie Mac have their own definition of a qualified borrower, but banks often go beyond these standards, raising the threshold for what it takes to qualify for a home loan. Primarily, because they don’t want to risk not being able to sell the loan later on the secondary market. Banks do this to shield themselves from the possibility that they might have to buy back loans they sell to the government should the loan go unpaid. That can happen if the government determines that the lender failed to vet borrowers’ creditworthiness properly.
Typically, it’s less costly to go conventional because FHA charges higher mortgage insurance premiums (MIP), even after the recent reduction. In addition, the interest rates are lower for conventional loans.
Bottom line – Save Save Save. The more money you put down the better off you’ll be.