Some in the mortgage industry are concerned that clients who obtain FHA loans find themselves facing more baggage now than in the past.
Certainly, FHA is a good option for those buyers who either can’t come up with the minimum 5 percent down payment that Fannie Mae and Freddie Mac now require, or have credit challenges. However, they’re not for everyone.
One important reason buyers want to avoid taking out an FHA mortgage is mortgage insurance. Buyers will be required to pay not one but two mortgage insurance premiums, and many in the industry are concerned that the cost of these premiums is spinning out of control.
Buyers encounter the first premium, Upfront Mortgage Insurance, when they close. This insurance must be either paid for or financed at the time of closing.
The second is the monthly premium. Until recently, this would fall off over time, but had to be in place for a minimum of five years. Now, it must remain in place until the loan is paid off, either through the sale of the property, or when the mortgage is refinanced.
As a result, many real estate agents are encouraging their purchase clients, who may be financing a property in the long term, to avoid having to take out mortgage insurance if at all possible.
This means that the better credit they have – and the more they can put down – the better the chance they’ll have to obtain a Fannie or Freddie mortgage without having to pay mortgage insurance.