Since 1 April, potential borrowers with credit disputes totaling more than $1000 have been ineligible for FHA mortgages, and today the FHA is due to increase its insurance premiums.
The reason for this is that the FHA is dealing with an unprecedented increase in mortgage delinquencies and defaults, and its insurance fund is severely depleted. Some studies, including one from the agency’s independent auditor suggest there is at least a 50% chance the FHA will need a taxpayer bailout, and there’s the possibility the FHA may continue to increase the cost for FHA loans.
Over the past 18 months the FHA has increased its insurance premiums significantly, so a borrower with a 95% LTV mortgage is now paying more than $95 a month more, and annual premiums have more than doubled since 2009. Prospective homebuyers with less than a 20% down payment are now advised to compare private mortgage insurance with FHA insured loans as they may be pleasantly surprised.
Private mortgage insurance is looking like an increasingly good deal, and its flexibility makes it very competitive. Multiple premium plan structures with affordable pricing allow borrowers to choose the premium payment plan that’s best for them. Even though many lenders restrict a borrower’s ability to choose their own private mortgage insurance provider, the choice of payment options available today can make a mortgage much more affordable.
Options include a monthly premium with no initial payment required closing, a premiums that can be paid in full and closing all financed into the loan, and even a so-called “split premium” where abortion is paid monthly and the remainder is financed into the life of the loan. A borrower with a 170,000 mortgage loan who has at least a 5% down payment and who takes out private mortgage insurance could save more than $7,000 over the life of the loan in comparison to the FHA. This equates to lower monthly mortgage payments and having more equity in the property right from the start.
Additional benefits of choosing private mortgage insurance include job loss protection, as certain mortgage insurers such as Genworth Financial offer a service that can pay the mortgage of qualifying applicants for up to $2,000 a month for six months should the borrower suffer in voluntary job loss. This benefit is available at no extra cost to the borrower. In fact in 2011, Genworth helped keep nearly 25,500 delinquent borrowers in their homes during times of financial hardship through implementing homeowner assistance programs. This has saved an estimated $4.9 billion in foreclosure losses.
Taking out private mortgage insurance offers protection for both the borrower and lender, and it can be cancelled when the borrower meets certain criteria and has built up sufficient equity. In contrast cancellation of FHA insurance only happens from paying down the mortgage.