IE Business Daily Business news for the Inland Empire.
By Ed Hoffman
With everything going on internationally – including terrorist fire bombs being used against French journalists who dared leverage freedom of expression, and a march of solidarity in Paris against Islamic terror for which our government was noticeably absent (because college football playoffs were more important to the President, maybe?) – I would expect that real estate financing news stories aren’t exactly at the top of your social media feeds this week. Fear not: I’m here to fill you in on the latest news in the mortgage business and break down the numbers to explain what it all means for you.
First, there’s some news regarding FHA mortgage insurance: As of January 26, FHA mortgage insurance will be reduced by half a percent. That might not sound like much, but it can make a big difference in your monthly mortgage payment; I’ll explain how in a minute.
Next, Fannie Mae and Freddie Mac have introduced a 3% down program for first time homebuyers; the program was designed to compete with the FHA program. Here are the caveats. To start, the program is for first-time homebuyers only. Plus, the program may not be as good for you as you think. Here’s why: A down payment as low as 3% comes with some very expensive mortgage insurance. If you’re going to buy a $300,000 house with the Fannie/Freddie 3% down program and you have a credit score of 660, you’re going to have a 4.25% interest rate with a 1.48% annual mortgage insurance. The bottom line is you’re going to pay $16,800 out of pocket and have a monthly payment of $2,152 including principal, interest, taxes and insurance.
If you buy the same home with an FHA loan and you have that same 660 credit score, you’re going to pay $17, 598; that’s $800 more out of your pocket, but let me explain how it’s better nonetheless. Your interest rate will be 3.625% and your mortgage insurance will be 1.35%, leaving you with a monthly payment of only $2,031; that’s $120 a month less for only $800 more upfront. If you wait until after the 26th when the mortgage interest rate goes down by half a percent, that will allow you to pay only $1,910 a month; that’s $240 less for that $800 more upfront. If you have a perfect or near-perfect credit score of 700, you get an even better interest rate, and therefore an even lower payment. So if you are not a first-time homebuyer, don’t despair: The Fannie Mae/Freddie Mac 3% down program is not all it’s cracked up to be. My opinion is that the FHA mortgage insurance rate reduction is the more exciting news here, and it can be taken advantage of by all homebuyers.
Next, there’s the reverse mortgage. No new programs to talk about here; I just want to address them because I know you’ve seen these advertised on TV, and I know you have questions. Do they work? Are they worth it? If you’re a senior and you have equity in your home, I can assure you that the answer to both questions is yes. I can also assure you that my company, Wholesale Capital Corporation, can do your reverse mortgage in half the time of the companies on TV.
As you can see, there’s plenty of real estate financing news happening right now. Next week, I’ll be back to the business of talking national politics – but for right now, this is news that Americans in search of a great home buying opportunity need to know about.
Ed Hoffman is the host of the Main Event on AM590, which airs Saturday at 9:30 AM and Sunday at 4:00 PM. Follow him on Twitter @EdHoffman, and like him on Facebook by searching The Main Event AM590.
