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The Real e-State: A major change in lending will cost homeowners tens of thousands of dollars

The ever-changing real estate landscape is changing again. This time it is a major change in lending and will cost homeowners tens of thousands of dollars.

FHA will now be continuing its mortgage insurance indefinitely on loans of 90% or greater loan to value. This means 10% down or more to avoid the indefinite mortgage insurance. Typically anything less than 20% will require some type of mortgage insurance.

I recommend the counsel of a loan professional to get the specifics. I give advice on real estate, not money. This article is meant to be informative and start a conversation with mortgage broker.

What is MI or PMI? These initials stand for the two types of mortgage insurers; government mortgage insurance (MI) and private mortgage insurance (PMI). The Federal Housing Administration (FHA) is the main government insurer. There are several corporations that underwrite private mortgage insurance.

You are currently able to deduct mortgage insurance premiums from your taxes, through 2013 anyway. We have no guarantees with our Congress for the future. Tax laws are always changing and this is an another area you want to seek out a, specific to industry, professional for questions.

How much is mortgage insurance?

These fees vary especially with down payment. You can expect anything from around 0.3% (very rare) up to 1.75% of the original loan amount per year.

Is FHA still a good option if you don’t have 20% to put down on a home? Yes! My clients are still finding FHA a helpful option to enter the market. With slightly more forgiving qualifying factors and larger loan to value amounts it might be a person’s best option to take advantage of the current prices and rates. Let’s face it, prices are going up and we will all be hearing, “I wish I had bought then.” a lot more often again.
Just be informed and know you will probably want to refinance out of a loan with MI/PMI to a new loan down the road.

Below is a chart showing a five year example courtesy of Rene DeBlanco with Movement Mortgage.

Cost of Mortgage Insurance after 5 years

Year $100K $200K $300K $400K $500K $600K

6 $1,300 $2,600 $3,900 $5,200 $6,500 $7,800
7 $2,600 $5,200 $7,800 $10,400 $13,000 $15,600
8 $3,900 $7,800 $11,700 $15,600 $19,500 $23,400
9 $5,200 $10,400 $15,600 $20,800 $26,000 $31,200
10 $6,500 $13,000 $19,500 $26,000 $32,500 $39,000
11 $9,100 $18,200 $27,300 $36,400 $45,500 $54,600
12 $10,400 $20,800 $31,200 $41,600 $52,000 $62,400
13 $11,700 $23,400 $35,100 $46,800 $58,500 $70,200
14 $13,000 $26,000 $39,000 $52,000 $65,000 $78,000

1 to 5 $6,500 $13,000 $19,500 $26,000 $32,500 $39,000

Example

For a 30 YEAR fixed FHA loan of $400,000 and an LTV of 90.1% that is paid/refinanced after 11 years, the cost of MI (for years 6-11) is $36,400. Total cost of MI for 11 years is $26,000 + $36,400 = $62,400.

Realtor Bo Bortner offers his sound advice and personal knowledge of the industry as a successful agent with Team Metro Real Estate. He is well-versed in Hillcrest, North Park, University Heights, Mission Hills, Golden Hill and downtown, but his clients come from all over. He gives back to the community through his involvement with Mama's Kitchen, The Trevor Project and University Christian Church. He can be reached at (619) 840-2981 or online at his website.