Recently in mortgage news you may be hearing about rising mortgage insurance premiums (MIP) for FHA loans. However, this does not mean the programs offered by the Federal Housing Administration have lost all benefit. These government mortgage loans continue to help home buyers and homeowners with low FICO scores. They also offer lower down payments which helps first time home buyers get into their first home. There is a downside to the increasing MIP but we must not overlook what FHA loans still offer.
April 1, 2013 FHA MIP Increase
Mortgage insurance premiums for FHA loans can be as high as 1.60 percent as of April 1, 2013. However, this is the worst case scenario and only for jumbo loans over $625,000. For many homeowners, those with a 20, 25, or 30 year mortgage and 95.01% or higher loan-to-value (LTV), the annual premium will be 1.35 percent. Those with a lower LTV will receive 1.30 percent.
Increasing premiums 7 time in just the last 5 years the FHA is ensuring its survival. Also, by law the Federal Housing Administration is required to have a Mutual Mortgage Insurance fund with $2 for every $100 insured. This fund is used to pay for claims on FHA insured loans however recently they had a negative amount in their fund.
What FHA Loans Still Offer
Some home buyers just don’t have enough money to make a large down payment. With an FHA mortgage you have the opportunity of putting a lower down payment on your home. First time home buyers who are still building up their income and financial credibility still benefit tremendously from this. Although you would have to pay a high FHA MIP for the life of the loan you can use this program as a stepping stone to a conventional home loan.
Homeowners looking to refinance their FHA loan can take advantage of the FHA Streamline program. The ability to refinance without an appraisal saves homeowners a lot of money. An FHA refinance can also offer extremely low requirements. This is beneficial to homeowners who have taken a hit to their credit but need to refinance with a lower rate.
Future FHA Programs
Although the FHA has been helping homeowners for many decades, we may sometimes forget what their goal is. This department of the government was put into place to help homeowners and home buyers. As the needs of Americans change so will the future FHA programs. That is why we must pay a little more today into mortgage insurance premiums for a better tomorrow. Worst case scenario homeowners could just refinance into a conventional loan and save on MIP or join the military and receive VA benefits.