FHA Loans, Not an Affordable Option Anymore

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Peoples Home Equity comments on a news release by newsday.com, describing the implications of mortgage rates in connection with a rule change that occurred this year regarding FHA loans.

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remember to include the cost of insurance for the entire life of a mortgage.

Peoples Home Equity informs readers of a new rules change regarding FHA loans.

Peoples Home Equity is reminding its mortgage applicants that a new rule issued in January this year by the FHA requires lien holders to pay for mortgage insurance for the life of their loan. This new change effective June 3rd of this year does not cripple new applicants finances, but it does beg the question to home buyers whether they would like an FHA versus a conventional loan.

FHA loans have always been a popular way to obtain a home due to its low down payment option. A down payment with an FHA loan can be as low as just 3.5%. In addition, loan requirements tend to be less austere, however, after the recent change requiring insurance for the entire duration of the loan, future lien holders will be shelling out thousands more on their mortgage.

An FHA loan was originally intended to help low income families, but during the subprime boom too many household applicants were lured away by very low rate mortgages. During this time, only a small number of Americans applied for an FHA loan. However, once the mortgage debacle began and loan standards began to tighten a much larger amount of Americans applied for FHA loans. Now, the FHA is enforcing the insurance change as a way to avoid another mortgage debacle in the future. As more individuals pay mortgage insurance, a large pile of capital can be saved in case an insurance company is ‘too big to fail’ and needs to make a large cash payout to save a bank from multiple delinquent properties.

According to a November 24th article published by newsday.com, “A borrower getting a $200,000 loan, after making a 3.5 percent down payment, pays $225 per month in FHA mortgage insurance, plus an upfront fee of $3,500.” This means over the course of 10 years a lien holder would pay $30,000 in mortgage insurance, or worse yet, $84,500 over the course of 30 years. Thus, Peoples Home Equity is always looking at the rate divergence between an FHA loan with mortgage insurance and a standard convention loan to show the mortgage applicant the more affordable option. Right now a standard 30 year fixed rate mortgage is selling at a rate of 4.47%, while a comparable FHA loan is selling at 4.17%. While first-time homebuyers may be lured to the FHA low at first sight, individuals must now remember to include the cost of insurance for the entire life of a mortgage.

Peoples Home Equity is always giving its mortgage applicants all the information they need to make the most affordable option to buy a home. The lender recognizes that unemployment remains above 7% and many homes are still underwater. While stocks have recovered, incomes for many middle class citizens have not climbed, thus the lender understands the cost of a mortgage to family applicants.

Contact a PeoplesHomeEquity.com loan officer today to explore their affordable mortgage options: (855) 897-0300

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