If you are thinking of buying a home, one of the first questions that comes up is how much money have you saved up for a down payment.
Previously, it was quite easy to get a loan on your Pasadena home with little or not money down. However, when the credit crisis hit two years ago one of the immediate casualties was the ability of home buyers to purchase a new home with a low down payment. The main reason was the retreat of mortgage insurance companies and their unwillingness to insure loans with less than a 10% down payment. Any financing with less than a 20% down payment will require mortgage insurance.
After the credit crisis the only alternative for low down payment financing was FHA which allowed a 3.5% down payment. However, FHA mortgage insurance is also going through changes of its own. As of October 1st the financed portion of FHA mortgage insurance will drop from 2.25% to 1.00% of the base loan amount ($100,000 Base x 1% = $1,000 financed insurance vs. $2250).
READ MORE: FHA Financing – Does it make sense for you?
Sounds like good news right! Not so fast.
FHA has also increased the monthly premium from .55 to .90 (loan amount x .90 divided by 12) or .85 on greater than 5% down. This will have a large impact on the monthly payment increasing it by roughly $29.25 per $100,000 borrowed.
The good news is that the mortgage insurance companies are stepping back into the market again giving home buyers another option with Conventional financing.
Within the last six months 5% down conventional financing came back into play for loan amounts under $417,000 and 10% down financing became available for loan amounts over $417,000 but under $625,500. This was improvement by 5% in each category. PMI, one of the largest insurance companies, recently announced that as of October 8, 2010 they would begin insuring 3% down conventional loans on loan amounts up to $417,000 in non distressed markets. Surprisingly the distressed market areas have been shrinking and are limited to mostly non metropolitan areas in each state. In addition to the market restrictions a 720 FICO score is also required.
FHA and Conventional Financing each have their own niches. For instance the new lower down payment requirements for Conventional Financing will enable home buyers to purchase condos without having to ensure they are FHA approved. FHA will allow Pasadena home buyers with lower FICO scores to secure low down payment financing. So it is even more important with this ever changing market to make sure your loan consultant is knowledgeable in both FHA and Conventional financing to determine which is the right fit and more cost effective for your situation. Having more options is good news for the Real Estate Market as long as the home buyer is well informed as to the pros and cons of each option.