With the housing market sliding down, people losing their jobs as well as credit ratings, it was a bit difficult to get private mortgage insurance last year. This led people to flock at the Federal Housing Administration.
They had no other option. PMI was not an easy task, and lenders were not offering mortgages to borrowers with down payments below 20 percent, except for those who had insurance. At that crucial time, FHA was the only body willing to back borrowers with credit scores below 680 or down payments under 5 percent. However, some mortgage companies today have loosened their standards and are willing to insure borrowers with down payments as low as 5 percent.
Although the PMI availability improves, premiums haven’t slid down from their ‘year 2008’ level. They remain at a comparative higher level. Today, a loan of $500,000 requires a borrower to pay $258.33 every month, which is 0.62 percent. Before 2008, the rate would have been 0.52 percent that makes $216.66 per month.
Coming to the conclusion – No doubt FHAs are popular among borrowers these days, but PMIs have certain beneficial characteristics as well. Individuals going for PMI directly save $11,250 on a $500,000 loan, which they would have been paying for the one-time FHA fee of 2.25 percent.
Many mortgage companies have already eased their PMI policy, how long will it take other market players to revise their policies too? Is it enough to improve the housing market or to pull down the premium rates to the ‘year 2008’ level?
Reference Link: http://www.nytimes.com/2010/05/30/realestate/30mort.html?scp=4&sq=mortgage&st=cse
Tags: Federal Housing Administration, FHA, mortgage, PMI, Private mortgage insurance
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