That’s certainly true in the Real Estate/Mortgage world too. Whether a hopeful new Home Buyer, someone looking to Refinance, or a Real Estate or Lending professional … being educated and capable of responding to the latest trend is important.
This last June (2013), FHA announced and implemented changes in policy. It increased costs in the Mortgage Insurance required on ALL loans insured and endorsed by FHA. This increase was definitely seen as a trend in our industry and a possible indicator of things to come.
Consider how these increases effect a Borrower: The typical or most common FHA Borrower puts together a minimum 3.5% Down Payment. This FHA Borrower now pays 1.75% times their loan amount:
- Example: $200,000 Loan X .0175 = $3,500 paid at Closing … OR the Borrower can finance this amount. If a Borrower is financing that cost, they borrow $203,500 and FHA receives a $3,500 payment (as directed from the Title Company or Lender at Closing).
In addition, this same Borrower pays Mortgage Insurance to FHA as part of their Mortgage Payment in the amount of $221.70 per month.
- Example: $200,000 X .0135* = $2,700 divided by 365 = 7.39 per day X 30 days = $221.70
* Monthly MI Factor with minimum Down Payment is currently 1.35
But major players in the Mortgage Insurance Industry in the Private Sector (used on Conventional Loans), recently dropped their rates by 5 basis points … or a .05 lower factor.
- Example: Conventional Mortgage Insurance costs in December 2013 were .0005 higher than for the same loan scenario in January 2014. That is $8.33 less then the case of the $200,000 loan amount cited above.
Yes, this dollar amount seems relatively minor, but it showcases: The reason for these increased costs for FHA loans … and the decreased cost of Conventional Loans is related to the Performance (Payment History) of these loans, as monitored over the past several years. FHA loans have created financial losses for the Dept. of Housing and Urban Development (HUD) over the last few years. Therefore, the cost of doing business went up.
Conventional Mortgages (typically higher credit scores, lower debt-to-income ratios, and more money down) have recorded better re-payment histories. Current clients are being rewarded based on that fact.
Looking for Trends in Mortgage Lending During 2014: Let’s hope for everyone’s sake that these trends continue. That FHA begins to see a reversal of the losses from their recently failed, riskier loans. That will translate into more relaxed fee structures for those in need of Mortgage Insurance in the future.
Saving money. That’s a trend we can all like …
- See more at: http://genemundtchicagolandmortgage.blogspot.com/2014/01/looking-for-trends-in-mortgage-lending.html