We have to face it – there just isn’t as much credit and cash to go around today as there was a few months ago. In spite of that fact people still have to buy a home from time to time for a plethora of reasons. Some may be transferring to new locations or simply graduating, marrying and buying a home. In fact the National Association of REALTORS has a prediction of 4.8 million homes being sold this year by members and non-member agents.

Bigger Families Need Larger Homes

A few months ago, less than 3 years, it was possible for a wide range of home buyers to purchase a home without making any down payment. While some of that activity is to blame for the mortgage crisis the truth is well qualified buyers have always had access to loans which would not require as much of a down payment especially with the use of a company which insures the lender against loss. The mortgage insurance companies have been around for many years and are very good at evaluating risk to their own investors as well as the market place. True enough some of them suffered huge losses after the “bubble burst” (aka market correction) but others had been a little more cautious on the run up and therefore did not suffer as great a hardship as others.

Who does Mortgage Insurance benefit?

That’s a two sided answer. MI benefits the home buyer because it allows them to purchase a home with a much lower down payment thus retaining their liquid capital or simply to make a lower cash injection at the time of purchase. Considering the down payment on a $200,000 home at 20% would be $40,000 and MI will allow a buyer to acquire the property with a down payment of as little as $6,000 I would say that could be a great benefit to the buyer.

Mortgage Insurance also benefits the lender. In fact if the lender does their job right, and most do, if the buyer ever defaults on the loan the MI company will be responsible for indemnifying the lender according to the policy provisions. It is an absurd assumption that MI companies and lenders collude on foreclosures “just to get the home” since MI companies actually fight with the lender to do their best to keep from paying the claim!

How much does Mortgage Insurance cost?

This varies by credit score, loan amount, property type, and a couple of other factors. Today I priced a 97% loan for someone with a 680 score on a $200,000 loan in Georgia and the amount was around $200 per month. Considering that will keep $37,000 in the buyer’s pocket I would call that a real bargain!

Do I have to pay Mortgage Insurance for as long as I own the home?

Mortgage Insurance can be cancelled when the amount owed on the home is less than 80% of the current value of the property. It is up to the home owner to keep up with this and notify the MI company. Obviously an acceptable appraisal or valuation per the MI company’s guidelines will be required. Typically this is about 5 years after the purchase in a stable market.

More questions about Mortgage Insurance

I can answer your mortgage related questions about purchases in the state of Georgia. Simply use the Contact Me form or call me at my office at 770-818-4365.

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HUD has issued Mortgagee Letter 2010-28 changing the Upfront and Annual Mortgage Insurance Premiums effective with case numbers assigned on or after October 4, 2010 as follows:

Upfront Premiums

Annual Premiums

These premiums are effective with case numbers assigned on or after October 4, 2010.

The cause for celebration over Federal Housing Administration lowering the upfront mortgage insurance premium is short lived. Concurrent to lowering the upfront fee is the increase of the monthly insurance premium fee.

Lowering the UFMIP from 2.25% to 1% will certainly decrease the amount of repayment. However, increasing the MIP from .55% to .90% (on loans with a down payment of 5% or less) will increase the cost of repayment significantly. The end result will be the FHA having more operating capital if the result is not a significant decrease in the number of sales due to borrowers not being able to qualify on debt-to-income ratios.

Currently, if you are purchasing a home at $200,000 (for example) with the FHA minimum down payment of 3.5% your base loan amount, prior to the UFMIP add back, is $193,000. Adding back the UFMIP, at the current rate of 2.25%, brings the loan amount to $197,343. The MIP cost per month, at the current rate of .55%, is $90.45 per month.

After October 4th 2010 the UFMIP will be only 1% meaning the loan amount including UFMIP will be $194,930 – a savings of $2413 on the purchase price. However with the new MIP rate of .90% the monthly MIP addition to the payment will be $130 – resulting in a payment approximately $40 per month higher.  At that rate the savings on UFMIP ($1900) will be lost in about 4 years.

One plus is that, at least currently, MIP does have a tax benefit and the buyer should consult their tax preparer for detailed information on the tax benefits of a monthly mortgage insurance premium.

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For many years the Up Front Mortgage Insurance Premium, established and priced by the Federal Housing Administration, has been at 1.75% of the loan amount on purchases and non-streamlined refinances. Due to increased costs and losses in the Administration a new level for the UFMIP has been established and will go into affect on April 5, 2010.

The UFMIP is not the same as the Monthly Mortgage Insurance Premium but rather is paid in full at the time of consummation of the loan. In other words the date the final loan documents are paid and monies exchange hands.

The HUD Mortgagee Letter 2010-02, issued by David Stevens, Secretary of HUD, issued on January 21, 2010 gave notice to lenders and the public of this change. Increases on FHA insured loans include an increase to 2.25% on purchases and streamlined refinances and an increase to 2% on HOPE for Homeowners refinancers and Home Equity Conversion Mortgages also known as “reverse mortgages”.

Annual mortgage premiums, also expressed as MMI from above, will not be affected at this time. The decision to increase UFMIP only was based on the effect of raising a home owner’s debt ratio above acceptable levels by increasing their monthly housing cost.

If you are unfamiliar with FHA mortgage insurance it is exclusively to encourage lenders to make loans. FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance.

IN STABLE MARKETS

97% flex (non affordable housing) to conforming with 700 score (previously not allowed)
660 credit score for LTVs up to 95% (this was lowered from 680)
680 credit score for condos up to 95% (this was lowered from 700)
CASH-OUTs to 85%, 680 score (previously not allowed) – there will be an adder on rate card
SECOND HOMES – 90%, 720 score or 85% 680 score (previously not allowed) – there will be an adder on rate card

IN MODERATELY DECLINING MARKETS

Condos okay to 90% 720 score (previously not allowed)

IN UG STANDARD DECLINING MARKETS

95% okay with 760 score (LTV raised from 90%)

FOR THIRD PARTY LOANS (TPOs) – EXCLUDING COMMUNITY BANKS OR CREDIT UNIONS ?(TPO is Third Party Originators or Mortgage Brokers)

90%, 700 score, 41 dti (credit score lowered from 720) *TPOs cannot do second homes or cash-out*

PRICING CHANGES ARM rates (anything 3/1 arm or lower) are going UP on most rate cards
**FIXED rates (including 5/1 ARMs and up) are relatively
UNCHANGED**
NEW TPO adder for BROKER Business (excluding comm bk and credit union) .25 Condo adder .10

Questions about mortgage insurance in Georgia? Call me 678-439-8683