FHA Mortgage Insurance Will Get Lowered To 0.85% From 1.35%

To stimulate home ownership for first time home buyers and seasoned home buyers, President Barack Obama announced that HUD, the parent of the Federal Housing Administration, commonly referred to as FHA who is the mortgage insurance provider for FHA loans, will be lowering their current 1.35% annual mortgage insurance premium to 0.85%.  This is a huge reduction and savings for the homeowner.  President Obama mission is to reward creditworthy mortgage loan borrowers by expanding responsible mortgage lending so they can afford a home and realize the American Dream of homeownership.  President Barack Obama will be discussing concerning the housing market at a schedule speech today in Phoenix, Arizona.  Phoenix, Arizona is one of the nation’s most affected regions due to the real estate market collapse.  The President’s new action will enable over two million Americans to affordable home ownership in the next three years according to United States Department of Housing and Urban Development Secretary Julian Castro.

What Does Obama’s Executive Action Mean To Mortgage Industry

This is one of the most positive news for mortgage industry professionals in all ends.  Mortgage professionals cheered at the news and sent memorandums to all of their staff.  This news came at the right time and if everything goes according to the President’s plan, the new FHA mortgage insurance annual premium of 0.85% could go into effect by the start of the spring home buyer season, which will sky rocket home sales, possibly to record levels.  First time home buyers who have been contemplating in buying a home will definitely pull the trigger.

FHA Loans Versus Conventional Loans

FHA loan is a great loan program where it offers first time home buyers and seasoned home buyers with less than perfect credit, higher debt to income ratios, or those needing a non-occupant co-borrower to qualify for a 3.5% down payment home purchase mortgage loan.  However, those with perfect credit can opt for a FHA insured mortgage loan instead of a conventional loan but in most cases stay away from FHA loan mainly due to the hefty 1.35% mortgage insurance premium.  Now with Obama’s new 0.85% annual mortgage insurance premium, many home buyers who qualify for a conventional loan may decide to go with a FHA loan due to the lower annual mortgage insurance premium because it may make much more sense.  Conventional loan borrowers who have loan to values, LTV, higher than 80% LTV are required to have private mortgage insurance.  Private mortgage insurance varies depending on the private mortgage insurer.  Private mortgage insurance can range from 0.40% to over 0.80%.  Another note is that conventional mortgage rates are higher than FHA mortgage rates.  To get the best conventional mortgage rates, a conventional mortgage loan borrower needs a credit score of 740 FICO.  The lower your credit score, the higher your conventional mortgage rate.  The minimum credit score you need to qualify for a conventional loan is 620 FICO.  A 620 FICO credit score is considered low when it comes to conventional loans.  A home buyer with a 620 FICO credit score may get quoted a conventional mortgage rate of higher than 5.0%.  However, that same home buyer will probably get quoted a 4.0% mortgage rate with a FHA loan.  A 4.0% FHA mortgage rate with a 0.85% annual mortgage insurance premium is not bad due the great savings in the FHA mortgage insurance premium.

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