FHA Upfront Mortgage Insurance Premiums (MIP) and Annual MIP rates have increased. The increased MIP rates are effective with FHA case numbers issued on or after April 1, 2013. On June 3, 2013, changes to the duration of the Annual MIP become effective. Effective with FHA case numbers assigned on or after that date, the Annual MIP must be maintained for either 11 years or for the life of the loan; depending on the terms of the loan. While FHA might not be the best option for your buyers, Honolulu HomeLoans (HHL) does offer other affordable, low down payment programs.
Some believe that our coverage of the housing market at times is too optimistic. Today, we want to report on Freddie Mac’s projections for the real estate market in 2013 as per their latest U.S. Economic and Housing Market Outlook.
Frank Nothaft, Freddie Mac vice president and chief economist, explains:
“Across the nation, most local housing markets have room for sustainable growth, particularly in home construction and sales. As the broader economy heals, expect to see more good news with house prices continuing their recent upward trend, and home sales and housing starts continuing to post strong growth rates.”
The report also offered projections on sales and prices.
Housing Starts and Sales
-Projecting housing starts in 2013 will increase to 950,000 units or about 22 percent higher than 2012 levels.
-Existing home sales are expected to pick-up as the house price recovery allows homeowners who have been forced on the sidelines by negative equity to get back into the market.
-While most metro areas saw substantial run-ups in prices during the boom, well above income growth, the subsequent market correction was in many cases more severe.
-The level of affordability in most markets suggests a continued improvement in home prices, and strong growth in sales and construction.
It seems Freddie Mac is also optimistic about the future of real estate in the U.S.
If you’ve been shopping for a home and don’t have the full 20% down payment required for a conforming loan, you’re not alone!
You may have been told that getting an FHA loan is your best or only option as a low down payment program. It is true that FHA only requires a minimum down payment of 3.5% and does allow for some flexibility in guidelines that other programs don’t. While FHA provides leniency in some areas, there are other low down payment options for those that don’t need the flexibility.
One issue with the FHA option is that FHA has increased the upfront annual premium that gets financed into the loan amount (1.75%) and the monthly mortgage insurance premium has almost doubled – it varies but can be as high as 1.25% for loan amounst of $625,500 or less. These increases make it less affordable for those buyers with a small down payment. Also, if you are purchasing a condominium or townhouse, the property must be on the FHA approved list and must have at least 50% owner occupancy to qualify.
For borrowers who have a 3% down payment, a great option is to do a conventional loan with mortgage insurance. These borrowers may qualify for a loan with a lower monthly mortgage insurance premium than FHA, and it does not require an upfront annual premium, resulting in a lower monthly mortgage payment and the ability to qualify for a higher priced home. Keep in mind that the monthly premium percentage can vary, depending on credit scores, loan-to-value, property type, occupancy etc.
If you have at least 5% for a down payment you may also qualify to pay for one-time, single-paid upfront mortgage insurance that is financed into the loan and does not require the monthly mortgage insurance premium. Both options have become more affordable for most borrowers than the FHA loan.
The conventional loan with mortgage insurance option also does not require that a condo be on the FHA approved list. And some mortgage insurance companies Honolulu HomeLoans works with do not require a condominium or townhouse to have 50% owner occupancy.
In addition to the FHA and conventional loan programs, there are financing options with a first and second mortgage that allow you to place a down payment of 5-10% and don’t require mortgage insurance. In addition there are programs such as VA loans for active duty or retired military that require no down payment at all. If you’re looking to buy in what USDA classifies as a ‘rural’ area (check USDA’s website at rurdev.usda.gov for eligible areas), you may want to explore your USDA financing options. These loans also allow for no down payment and have a very minimal monthly mortgage insurance premium.
Lastly, Honolulu Homeloans offers the state-sponsored Hula Mae program which is available for first-time home buyers. It offers a no down payment option when used in conjunction with the Hula Mae down payment assistant program.
So, if you’re shopping for a home loan and do not have a 20% down payment we would love to discuss your financing options with you and get you on the way to purchasing a home!