FHA Loses Competitive Edge For Home Buyers

As FHA mortgage costs increase, consumers are finding that private mortgage insurance is a more viable and affordable option, according to a recent WalletHub analysis

FHA mortgage insurance premiums have nearly doubled since 2008, data show. Today one must pay $17,398 in premiums during the first five years after the purchase of a median-price home ($212,100), compared to just $9,210 in 2008.

Many consumers with down payments below 20% can save $2,251 to $12,026 in five years by choosing private mortgage insurance (PMI), data show.

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“The higher your credit score and the more money you are able to put down, the more potential savings from PMI,” WalletHub notes.

In addition, Wallethub points to FHA premiums, that unlike private mortgage insurance, continue to be assessed throughout the life of the loan even if the loan to value ratio drops below 80%.

“This can create huge cost disparities over time,” Wallethub says, adding that there is little price variation in the private mortgage insurance market.

For consumers seeking a low down payment mortgage, Wallethub advises shopping around for the best loan terms available. 

“The fact that consumers are generally stuck with their lender’s PMI company of choice is another good reason to shop around at several lenders in order to make sure that you are getting the best loan terms and the best deal on mortgage insurance,” Wallethub says.

Access the WalletHub analysis here.

Written by Cassandra Dowell

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  • What private insurer wants to come into the reverse mortgage industry when FHA is reporting a one year actuarial determined loss of $7.7 billion for last fiscal year? Yet that loss does not reflect the cost of operating the HECM program or its general and administrative costs since the annual appropriation from Congress pays those costs. Private insurers do not have US taxpayers bailing them out if there is a loss such as the $1.698 billion HUD took from the US Treasury at the end of fiscal 2013.

    But why has FHA taken the drastic reforms related to forward mortgages? In part it is because it is using those programs reflected in the MMI Fund as the means to offset the losses attributable to the HECM portion of the MMI Fund and it is working. Even the NRMLA conference only focused on the actuarial report on the MMI Fund as a whole and spent NO time on the separate report the actuaries issued on just the HECM portion of that fund for last fiscal year.

    In the spring of 2009, OMB issued the budget for HUD for fiscal 2010. In it OMB predicted that the loss on the fiscal 2010 year book of HECM business on a discounted cash flow basis would result in a $798 million loss (in today’s dollars) to HUD and the MMI Fund. The outcry from our industry was furious and ridiculous. There were cries that somehow HUD was cooking the books and monies were taken from the HECM program and given to the FHA forward mortgage programs. Yet no empirical evidence was ever offered.

    Today not only do we have empirical evidence that HUD has transferred over $6.5 billion from other MMI Fund programs into the HECM part of that fund but that evidence has been verified by both outside actuaries and independent CPAs. So where is the outcry today when we know what is actually going on (rather than imagining it).

    For those who dream about private insurers and investors coming together to create reverse mortgages that are competitive to HECMs, dream on; it ain’t happen’ now or at any time in the near future. As originators our employer may not be FHA or HUD but there is no question that our future is DIRECTLY tied to both.

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