Death, Taxes and PMI

While it was true that nothing in this life is certain but death and taxes, we can now add “paying FHA Mortgage Insurance forever and ever” to round out this trio of truths.

There is unfortunately only one of these three with which I may be of assistance. Since I have no “in” with the IRS , I can assist with the consideration of FHA versus conventional loans for mortgage clients.

Again, whereas the qualification for conventional loans is sensitive to credit score, in some circumstances, the home buyer can come out ahead by taking advantage of a conventional loan by putting 3% down.

In other words, 97% conventional financing truly does exist. We know that every single mortgage applicant’s situation is completely different ranging from their income, to credit history, to property type; but in many cases the approval of a conventionally financed home should not automatically be deemed unattainable with such a low down payment. I’ve been in this industry for years and years and have learned nothing should ever be assumed. Often compensatory factors can put a client within easy reach of an attractive interest rate or mortgage product.

Don’t get me wrong. FHA has done tremendous things to support home buyers. Kudos to their acknowledgement that buyers  don’t necessarily fit into a neat little underwriting box which a low down payment conventional loan says you must in order to qualify. (Think “You Must be This Tall” to hitch a ride on Space Mountain…no exceptions.)

But today, there are many changes in the World of FHA. And the one that rockets right to the top of the stratosphere is the change being imposed on monthly insurance costs. As of June 2013, these new guidelines will render monthly mortgage costs  (commonly known as Private Mortgage Insurance or PMI) to last forever – forever as in the life of the loan.

Even if you only live in a house for 5 years, forever is a long time. You’ll never pay that premium off as long as you owe money on the home, not even when you achieve 20% equity in the property. It certainly makes coming up with a 3 or 5% down payment and potentially meeting the other criteria for a conventional loan a bit more attractive. At the end of the day, consider all your options when loan shopping.

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