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How to Avoid Permanent FHA Mortgage Insurance

On April 1st, FHA annual mortgage insurance increases again making mortgage payments of first time and low down payment home buyers a little more expensive.

On June 3rd, 2013, FHA annual mortgage insurance will remain for the entire term of the loan for all 30 year fixed rate mortgages with a loan to value over 90%.

Here is the complete breakdown of the new MIP changes based on loan term and loan to value:

Term LTV (%) Previous New
<15 yrs <78 5 years 11 years
<15 yrs >78 – 90 Cancelled at 78% LTV 11 years
<15 yrs >90 Cancelled at 78% LTV Loan term
>15 yrs <78 5 years 11 years
>15 yrs >78 – 90 Cancelled at 78% LTV & 5 yrs 11 years
>15 yrs >90 Cancelled at 78% LTV & 5 yrs Loan term

FHA is Not the Only Option

Conventional financing is in many ways a much better option for home buyers or home owners with a high loan to value.  Did you know that conventional financing offers these options?

Purchase a home with as little as 3% down payment – If you are buying a primary residence, conventional financing allows for as little as 3% down payment using Private Mortgage Insurance, which will save you thousands of dollars in closing costs and monthly payments.  There is a pretty significant drop in costs if you can scrape up another 2% down for a loan to value of 95%, be sure to ask your loan officer for a comparison.

Refinance a home up to 97% loan to value – Conventional loans allow homeowners to refinance an owner occupied home up to 97% loan to value.  Same program as a 3% down payment purchase.

Lender paid mortgage insurance – Conventional programs also allow the lender to pay the mortgage insurance for a borrower.  This results in a slightly higher interest rate so do the math.  This is a fantastic option for those buyers or owners that want to convert mortgage insurance into tax deductible mortgage interest!

Community Access – This program offers significantly reduced mortgage insurance rates, 3% down payment (or loan to value on refinance) and reduced closing costs.  The catch is, there is an income limit of 140% of the area median income for where you buy.  These limits are very generous and I rarely see this being an issue.

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