Guest Author: Mondie Pic'l
When the credit crisis hit two years ago one of the
immediate casualties was the ability of Pasadena home buyers to purchase a new home with
a low down payment. The main
reason was the retreat of mortgage insurance companies and their unwillingness
to insure loans with less than a 10% down payment. Any financing with less than a 20% down payment will require mortgage
insurance.
After the credit crisis the only alternative for low down
payment financing was FHA which allowed a 3.5% down payment. However, FHA mortgage insurance is also
going through changes of its own. As of October 1st the financed portion of FHA
mortgage insurance will drop from 2.25% to 1.00% of the base loan amount
($100,000 Base x 1% = $1,000 financed insurance vs. $2250).
Sounds like
good news right! Not so fast.
FHA has also increased the monthly premium from .55 to .90
(loan amount x .90 divided by 12) or .85 on greater than 5% down. This will
have a large impact on the monthly payment increasing it by roughly $29.25 per
$100,000 borrowed.
The good news is that the mortgage insurance companies are
stepping back into the market again giving home buyers another option with
Conventional financing. Within the
last six months 5% down conventional financing came back into play for loan
amounts under $417,000 and 10% down financing became available for loan amounts
over $417,000 but under $625,500. This was improvement by 5% in each category. PMI, one of the largest insurance
companies, recently announced that as of October 8, 2010 they would begin
insuring 3% down conventional loans on loan amounts up to $417,000 in non distressed markets. Surprisingly the
distressed market areas have been shrinking and are limited to mostly non
metropolitan areas in each state. In addition to the market restrictions a 720
FICO score is also required.
FHA and Conventional Financing each have their own niches. For
instance the new lower down payment requirements for Conventional Financing
will enable Pasadena home buyers to purchase condos without having to ensure they are
FHA approved. FHA will allow home buyers with lower FICO scores to secure low
down payment financing. So it is
even more important with this ever changing lending market to make sure your loan
consultant is knowledgeable in both FHA and Conventional financing to determine
which is the right fit and more cost effective for your situation. Having more options is good news for
the Real Estate Market as long as the home buyer is well informed as to the
pros and cons of each option.
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Mondie Pic'l is the Branch Manager for Fairway Mortgage. She has over 25 years
mortgage banking experience and has demonstrated a lasting commitment to
providing personalized customer service.
Please feel free to visit Mondie's web site at www.mondiepicl.com. Her
direct line is 626-233-1303
