By Alain Valles
On Jan. 7 President Obama announced that the Federal Housing Administration (FHA) will drastically lower the cost of FHA mortgage insurance by 37 percent. This reduction, combined with record low interest rates, has created a tremendous opportunity for millions of people to save billions of dollars on current and future FHA loans.
•You do not need to be concerned about your home’ s value because no appraisal is needed.
•Quite often there will be no closing costs and no money required for your new escrow account.
•No tax returns or paystubs are required, just verification that you are employed. This means if you have new debt payments such as a car loan or credit card balances you could still qualify.
•Half a percent lower annual FHA Mortgage Insurance Premium costs.
•You must have paid your mortgage on time for the past 12 months.
The exact amount of money you would save depends on the interest rate on your current mortgage, the new interest rate and the loan amount. Using a loan example of a $250,000, 30-year fixed interest rate of 4.50 percent being refinanced with no closing costs down to a 3.75 percent fixed interest rate would save just over $210 a month.
The savings created could be used to pay down more expensive credit card debt, vehicle or student loans, make investments, or fund a retirement account. Many people apply the savings towards the new mortgage payment and just keep making the same monthly mortgage payment in order to pay off the mortgage much faster. For the above example, the savings would amount to over $100,000 if the original loan was taken a year ago.
FHA purchased loans have often been used for buyers with credit challenges, low down payments (3 1/2percent), high debt balances, lack of reserves and multi-family purchases. However, the FHA mortgage payments have been considerably higher due to the required Mortgage Insurance Premium (MIP). Now that the MIP has been reduced by half a percent, buyers have more buying power or a lower payment for the same purchase price.
Someone buying a home with a $350,000 FHA mortgage will now save approximately $145 a month in MIP payments. Or you could buy a higher priced home for about $380,000 and have the same monthly mortgage payment.
As with all examples, they may not necessarily apply to your particular situation and the market conditions may change without notice.
Alain Valles is president of Direct Finance Corp. He can be reached at 781-724-6221 or by email at av@dfcmortgage.com Read additional articles archived on www.fiftyplusadvocate.com
