FHA Mortgages To Have A Banner Year

house202FHA mortgages will have a banner year in 2016. You can see this coming. It’s a mortal lock.

It doesn’t matter whether FHA endorsements go up or down, the program will still have a great year. Here’s why.

First, in 2015 the FHA cut its annual mortgage insurance premium (MIP) for most loans by .5 percent, going from 1.35 percent to .85 percent. The result is that the monthly cost to finance with an FHA-insurance loan fell substantially. Someone with a $150,000 mortgage saves roughly $750 in the first year. That’s real money.

Second, with a new and lower cost structure the use of FHA financing soared. HUD reports that in fiscal 2015 the FHA endorsed 1,116,214 mortgages. That’s an increase of more than 325,000 units.

Third, while the loan limits for conventional mortgages increased in 39 high-cost counties, FHA loan limits went up in 188 areas. This means the FHA program will have greater utility in areas where home values are rising.

FHA Mortgages & Lower Prices

Fourth, FHA loans tend to have lower interest rates than conventional financing. As the Mortgage Bankers Association reported just before Christmas:

“The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.16 percent from 4.14 percent, with points increasing to 0.47 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.”

In the same report the MBA noted that “the average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.92 percent from 3.90 percent, with points increasing to 0.39 from 0.31 (including the origination fee) for 80 percent LTV loans.”

Of course, for most FHA borrowers the idea is not to take out a mortgage with 20 percent down, instead it’s to borrow with just 3.5 percent up-front.

The lower costs associated with FHA mortgages have now been confirmed with a new study from the Urban Institute’s Housing Finance Policy Center. According to the November edition of the Center’s Housing Finance At A Glance report, FHA financing is consistently cheaper than loans which require private mortgage insurance. Indeed, according to the report, financing with a $250,000 mortgage would save anywhere from $96 to $260 per month, depending on the borrower’s credit score.

Displaying FHA Vs. PMI.jpgFHA Vs. PMI --OurBroker.com

Despite the predictions of many economists that 2016 will be a better year for real estate as a result of a strengthening economy, that may not be the case for large numbers of Americans, especially those with household incomes which are still below the 1999 peak.

If it happens that real estate sales stall, it will be the FHA program which remains in place to support home sellers nationwide, just as we saw after the mortgage meltdown.


Permission to re-post the FHA Vs PMI chart courtesy of the Urban Institute’s Housing Finance Policy Center.

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