Mortgage insurance is up for large FHA loans
By Jeff Lazerson
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed rate averaged 3.99 percent, 4 basis points higher than last week’s 3.95 percent. The 15-year fixed averaged 3.44 percent, 6 basis points higher than last week’s 3.38 percent.
Partly due to the New Year holiday adjustment, the Mortgage Bankers Association reports an abnormally large 8.3 percent increase in loan application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $453,100 loan, last year’s rate of 4.12 percent and payment of $2,195 was $34 more than this week’s payment of $2,161.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at zero cost: A 15-year at 3.50 percent, a 30-year at 4.0 percent, a 15-year agency high-balance ($453,101 to $679,650) at 3.75 percent, a 30-year agency high-balance at 4.25 percent and a 30-year jumbo (over $679,650) at 4.50 percent.
What I think: It’s about time we start a new cause by targeting tax and assessment predators.
Pocketbook predators come at us from all directions. We have the highest state income tax rates in the U.S., newly increased property deed recording charges, newly increased gasoline taxes, a decreased cap on mortgage interest deductions, a federal tax deduction cap on state taxes, and a new recreational marijuana tax.
And, with a cherry on top, starting Jan. 1, any Federal Housing Administration loan over $625,650 with the minimum 3.5 percent down payment, has an additional annual mortgage insurance premium of 0.20 percent on top of the current 0.85 percent, in high cost areas like Orange, Los Angeles, San Diego, Ventura and Santa Barbara counties.
That brings the total PMI to 1.05 percent.
The new single-unit FHA loan in Orange and Los Angeles counties maxes out at $679,650. Two units is $870,225, three units is $1,051,875, and four units maxes out at $1,307,175. Those other high-cost counties have various slightly lower caps.
Take a maximum FHA base loan amount of $679,650. The monthly mortgage insurance premium is now at $594.69 based on the 1.05 percent new annual rate ($679,650 x 1.05 percent divided by 12 months).
At 0.85 percent, the monthly premium would have been $481.42, or $113.27 less in monthly outgo. Holy pocketbook predator!
To be fair, this rule goes back to 2012 for any FHA loan amount over $625,500, according to Brian Sullivan, spokesman for the U.S. Department of Housing and Urban Development. The higher premium was little noticed because the end of the Economic Stimulus Act of 2014 dropped FHA high-cost, one-unit loan limits to $625,500 from its previous $729,750.
Still, this leaves borrowers with a lot to think about. What is the most affordable low-down payment path for revolting against pocketbook predators?
Once you exceed a $453,100 conventional loan amount, the lowest allowable down payment is 5 percent. For both FHA and conventional, can you go to $679,650 loan amount, but FHA only requires 3.5 percent down.
Assuming you can come up with a total of 5 percent down, comparing high-cost FHA and conventional financing might require a mathematician.
“On a 95 LTV (loan-to-value), it’s about a push for 700 credit scores to as much as $80 cheaper per month if the credit score is 760 or higher,” said Mike Zimmerman, spokesman at MGIC private mortgage insurance company.
Besides basic FICO score pricing, there are other considerations that can affect your approvability and pricing-like is it a condo, cash reserve requirements, income and debt ratios.
With a credit score as low as 680, you can also do a piggy-back second that would entirely avoid the conventional mortgage insurance or the FHA mortgage insurance. That’s 5 percent down up to $679,650 loan amount with a 15 percent second mortgage for a total of 20 percent down.
Jeff Lazerson - Mortgage Columnist since 2011