With the change in the real estate market, becoming a home owner is more realistic than its ever been. With the recent decrease that The Federal Housing Administration (FHA) have applied, fees have dropped 0.5% and down payment options seem more sensible.
Along with lower interest rates, the real estate industry has become a buyers market. Here are some tips to help you determine if a low down payment mortgage is right for you.
The FHA is in charge of insuring loans for the lender, not you. However, this affects you as a whole because when the lender can save money, so will you. Mortgage insurance is not rolled into your loan payment, it is an additional fee. This fee will go up and down, and is mandated by federal regulations. It is a safety net to ensure there is plenty of money to care for defaulted loans.
There was a spike in the FHA fee rate when individuals became less reliable in 2008. Since then, funding has become stabilized and rates were cut. The housing market has rebounded, and these rates are becoming more and more reasonable.
There are other options to obtaining a low down payment, besides FHA. Fannie and Freddie have both presented an option that is a rate of 3%. With these types of loans you do not have the FHA mortgage insurance, but rather a private mortgage insurance. You end up paying this type of insurance off in as little as two years. Plus, the mortgage insurance could become a tax deductible.
With the FHA option you will have a 3.5% down payment, while PMI only requires a 3%. You will be required to pay 1.75 percent of the loan total upfront with an FHA loan. This still works out to be $66 less a month when compared to PMI. However, if you flip to a 5% down payment with PMI, that will decrease the rate to 1.05% and the monthly payment for PMI is cheaper.