FHA Mortgage Insurance
What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
RATE NEWS SUMMARY
From Freddie Mac’s weekly survey: The 30-year fixed rate dropped nicely, again, to 3.63 percent from last week’s 3.66 percent. The 15-year fixed dropped to 2.93 percent from last week’s 2.98 percent.
The Mortgage Bankers Association reports a 14 percent increase in loan applications from the previous week with a 57 percent spike in Federal Housing Administration refinance volume contributing.
BOTTOM LINE: A year ago, 30-year fixed mortgage rates averaged 4.39 percent. Assuming a borrower gets the typical 30-year conforming fixed rate on a $417,000 loan, last year’s of $2,085 was $183 more than this week’s payment of $1,902.
WHAT I SEE: From rate sheets hitting my desk that are not part of Freddie Mac’s survey: Locally, FHA buyers and refinancers can get zero points loans on a 30-year fixed at 3.25 percent or a 5/1 FHA adjustable-rate mortgage (fixed for five years and adjusting yearly thereafter) at 2.875 percent. Or, take the FHA jumbo fixed ($417,001 to $625,500 for O.C. borrowers) at 3.375 percent or the 5/1 ARM at 2.875 percent.
WHAT I THINK: Starting Monday, annual mortgage insurance will drop one-half percent on all new FHA loans. This applies to purchase, cash-out and streamlined refinances. Serious savings is in play for you.
The formula for the old annual FHA mortgage insurance premium was loan amount x 1.35 percent divided by 12 (months). The new formula is loan amount x .85 percent divided by 12.
The FHA still requires the one-time upfront mortgage insurance premium of 1.75 percent added to your loan balance.
And, piling on, the maximum 30-day prepayment penalty provision when paying off an FHA loan is gone for good. Until recently, FHA-approved lenders could charge interest through the end of the month even when the mortgage was paid off before month’s end.
So, now, you, your realty agent, your loan officer and escrow officer have no more angst about having to fund at the end of the month to avoid paying up to one additional month of mortgage interest.
Here’s a little insider information. Make your loan officer bump up your interest rate enough to buyout the upfront mortgage insurance premium of 1.75 percent, any loan origination charges, all of your settlement charges and advancing your escrow impounds for taxes and insurance.
Your interest rate will go up by approximately 1 percent, but you are saving thousands of dollars in upfront expenses. You can’t buy out the annual mortgage insurance.
For purchases, FHA does not require you to be a first-time buyer. Gift funds are allowed for the 3.5 percent down payment. You can use non-occupant co-borrowers to help you qualify. FHA will accept some rough credit. You can go down to a 580 middle score with 3.5 percent down or a 500 score with 10 percent down.
Streamlines are fast, easy refinances in which the borrower takes out a new loan with a lower interest rate. For the most part, just prove you have been current on your mortgage for the last six months and you are reducing your payment by at least 5 percent. No income qualifying or appraisal is required on a streamline refinance.
Borrowers will now have the added bonus of lowering their mortgage insurance premium by one-half point as well.
Even if your interest rate is the same as the current market, you should refinance because the new, lower mortgage insurance effectively drops your rate by one-half percent.