Suzanne Plewes, RE/MAX Alliance in Loveland

Suzanne Plewes, RE/MAX Alliance in Loveland

Last week, we mentioned that loan limits increased for FHA mortgages. In Obama’s final weeks in office, he set into motion a decrease in the FHA monthly mortgage insurance rate, which would have saved buyers money and made home purchasing more affordable. However, the Trump administration quickly cancelled this plan last Friday.

What is mortgage insurance?
Mortgage insurance is required on all FHA loans with less than a 20% down payment. There is an amount charged up-front (at closing) and every month for the life of the loan. These funds go into a pool and help insure lenders against losses when a borrower defaults on an FHA loan. When fewer borrowers default on their loans, this leaves more in the pool of funds. FHA may reduce mortgage insurance rates on new loans (both purchase and refinances) as a result, which was the original announcement a few weeks ago. This change was scheduled to go into effect on January 27, 2017, applying to loans disbursed on or after that date.

What this would have saved home buyers
Monthly mortgage insurance rates would have dropped for all loan types. 30 year loans up to $636,150 would have dropped by 0.025% (monthly calculation rate). On a $400,000 loan amount, this would have saved – $100 per month. For a $636,150 loan, the savings would have been $159 per month. FHA jumbo loan mortgage insurance rates were also scheduled to change by an even larger 0.045% monthly calculation rate. On a $700,000 loan, that would have saved – $315 per month.

What this means for Colorado home buyers
Monthly mortgage payments typically include mortgage interest, principal, taxes, and insurance. A lower mortgage insurance rate would have led to direct savings for home buyers each and every month. For some buyers, lower MI rates would have allowed them to qualify for a higher priced home. It’s a shame that this rate reduction has now been cancelled.

If you are a home buyer with a pre-approval for an FHA loan, be sure to check with your lender. If your pre-approved purchase price took into account the reduced mortgage insurance rate, then your figures will likely change. It is important to have an up-to-date and accurate pre-approval before moving forward with any offers on a home.

By: Suzanne Plewes, RE/MAX Alliance
Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail suzanneplewes@remax.net.