January of 2015 was an important month for potential home buyers looking to purchase their next home using an FHA mortgage. The reason is because of the governments announcement on the reduction of their monthly mortgage insurance. The old mortgage insurance factor was 1.35%, and the new reduced amount is only 0.85%.
Why does this matter to me?
This is important for two reasons.
1.) The average homeowner will save about $900/year. Since the mortgage insurance each month is based on the initial loan amount, a lower percentage factor means more money in your pocket.
2.) You could potentially qualify for a larger home. As a lender, we calculate the amount you are approved for using the Debt to Income Ratio, also known as DTI.
This means we take your monthly income, and divide that by your proposed housing payment (Principal, Interest, Mortgage Insurance, Home insurance, taxes), along with other debts, and as long as it falls under a certain percentage, you could be approved pending underwriting approval. With reduced factors, that means room for a higher loan amount or a bigger home.
This fantastic news comes at the same time that Fannie Mae announced their new guidelines allowing only 3% down payment instead of the old 5% minimum.
Keep in mind that while the FHA mortgage insurance premium has been reduced, it still sticks on for the life of the loan. Only Conventional loan mortgage insurance goes away once you have 20% equity in the home.
Contact me today for pre-approval!