LA Times: FHA Loans Are Losing Their Competitive Edge

Home loans insured by the federal government are becoming comparatively less competitive than privately insured loans, writes the LA Times this week. For first-times homebuyers and low-to-moderate income borrowers starting this month, private mortgage insurance looks like the less expensive option than a Federal Housing Administration-insured loan. 

Due to a rise in mortgage insurance premiums that went into effect on April 1 and an effort generally for the FHA to shore up its insurance fund, the cost of FHA insurance is rising, LA times writes, which shows a comparison for a first-time homebuyer under both options. 

For a borrower with a credit score of 760, and a 5% downpayment on a 30-year, $170,000 mortgage, opting for private insurance could net savings of $4,000 over time, the article finds. Even those without such a strong credit profile can benefit, the Times writes. 

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“Of course, most folks don’t have credit scores that high. But for nearly all borrowers who can come up with a down payment of at least 3.5% on a loan of up to $625,000, PMI is now probably the better deal,” according to the article. 

In the comparison, the borrower who takes the FHA loan will face a monthly insurance premium of 1.3%, or $184, while the borrower with private insurance under insurer Genworth Financial will face less than half the premium at 0.44% or $62. 

“As a result, the choice between mortgages with private mortgage insurance and those insured by Uncle Sam has never been clearer,” writes the LA Times. 

Read the full article.

Written by Elizabeth Ecker

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