Much of Texas and for sure North Texas is in the midst of one of the hottest housing booms this century. In most housing booms, there is high demand and low inventory which is reflected in higher home prices.
According to Ellie Mae, 40 percent of buyers 36 years of age and younger obtained an FHA mortgage to finance their home purchase. This means there are a lot of first-time home buyers that found FHA to be the most attractive choice for financing their home purchase.
Why?
Because FHA is attractive based on several criteria:
- A low down payment as little as 3.5 percent.
- Lower credit score requirements.
- The seller can contribute most of the closing costs.
- Low-interest rates.
- Flexible credit requirements.
- Family can gift the down payment.
But FHA loans aren’t perfect. Most FHA loans come with a mortgage insurance premium (MIP) that cannot be canceled as long as you keep the loan.
That doesn’t mean that canceling FHA mortgage insurance is impossible. It’s just the opposite.
FHA-insured mortgage loans require two different types of mortgage insurance: an upfront fee and an annual mortgage insurance premium that is often paid monthly in the mortgage payment.
Upfront Mortgage Insurance Premium
This upfront fee is a one-time premium charged upfront and equals 1.75 percent of the loan amount. This fee is often financed into the loan.
This fee also cannot be refunded unless you are refinancing into another FHA loan. The catch is you would once again have FHA mortgage insurance. The best option is to refinance into a conventional loan if possible, in spite of losing this cost.
Annual Mortgage Insurance Premium (MIP)
This insurance premium is charged once a year, but FHA changes it in your monthly payment.
This fee varies according to down payment and loan terms, but the most common annual MIP is 0.85 percent of the loan amount. Borrowers using an FHA loan to purchase a home in 2016 who put 3.5 percent down payment will have to pay the annual mortgage insurance for the life of the loan, or up to 30 years.
Borrowers who put a 10 percent down payment or more will reduce the timeframe required of paying MIP to just 11 years.
Back to our housing boom
Many economists are predicting home appreciation of 15 to 20 percent in the North Texas area. According to the National Association of REALTORS®, the median home listed for sale in the U.S. in May 2016 was $250,000, a full 9 percent increase from a year ago!
You might be asking what does this have to do with FHA mortgage insurance?
Well, it’s simple. If you have 20 percent equity based on current value (not your loan amount) you might very well be in a position to refinance into a conventional loan that does not require ANY mortgage insurance.
If you want to determine if you are in an equity position to refinance we’ve made it pretty simple. Just complete the form below and we will help you determine your current equity position based on the value of your home.
Refinancing out of FHA MIP can add up to substantial savings. Today is a great time to make this move while home values are on the rise and mortgage insurance rates are near historic lows.