Many of us know that FHA raised their monthly mortgage insurance rates in October 2010. For the most part, this made FHA loans more expensive on a monthly basis once it went into effect. You can see the changes and see how it affected the monthly mortgage payments. 3 quick examples regarding the change in FHA mortgage insurance
Now, Fannie Mae will be increasing their fees on specific credit scores and depending on your down payment. It's all shown in this post, Pricing hikes for Conventional loans - April 1st, 2011
So.. are waiting for the new wrecking ball that will crush or slow down the housing market? I ask this question because there are people that feel this will happen. I read about this in some of the comments from Dennis Helmstetter's blog, Fannie Mae - New fees a kick in the gut? - I also went to NYC this past Tuesday for REBarCamp and spoke to a realtor that also felt that people should put more money down, or we might not have gotten ourselves into this current housing mess.
Au contraire mon frere.... In my opinion, I will disagree with both statements. What are these so-called statements?
- Changes in higher FHA monthly mortgage insurance rates and the increase pricing penalties for Fannie Mae loans, that the housing market will slow down.
- Buyers need to put 20 percent down and have great credit scores.
Let's take a quick look at the monthly mortgage insurance that increased back in October. Okay, so the housing market didn't get any worse a month or two after this change. Now, in many areas, more people are buying homes. It's been proven in the housing stats. If you see my examples, FHA increase in mortgage insurance, you will see that borrowers payments would increase anywhere from $15 to $88 more a month depending on the loan amount.
Now you we will have pricing hits on Fannie Mae loans in April 2011. If you actually understand these charges, for the most part, it will either increase the mortgage interest rate by an 1/8 of a percent or the borrowers out of pockets expenses would increase from 1/4 to a 1/2 of a point. Sure, the out of pocket expenses could be a lot worse for the borrower, depending on their purchase price. Hence why I would just build it into the interest rate, because that would change the mortgage payment any where from $7 to $39 a month, but depending on the loan amount.
Okay, after giving you the information that I gave you above, do you really think any of that will slow down the housing market? I don't think so... let's look at the crumbling economy even before these changes take place.
- Unemployment rose above 9 percent...
- Small businesses were failing
- Food prices increased
- Gas prices increased
- From 2002 to 2006, housing prices increased 3 x the normal appreciation levels in previous years. Then they came tumbling down. Many couldn't refinance.
- And more items not listed.....
Can we use common sense to say that many didn't buy because they either didn't have the money or were taking longer to save their money? That consumer confidence was down considerable than in previous years? I would have to assume that I could use these answers. Yes, getting a mortgage has gotten tougher. But it gets to my next issue.
Should borrowers have to put 20 percent down and or have excellent credit scores? I'm sorry, but I think someone having a 620 or above is a good credit score. 20 percent down? Most couldn't afford that or it could take 10 years plus to save that kind of money. Sorry people, we are in a much different ara than when our parents grew up, when it was customary to put down 20 percent.
Let me point out some simple facts.
As far as I can remember, since I have been in this business since 1992, foreclosures and late mortgage payments have been relatively low until 2007 or so. hhhmmm.. Is this about the same time that we saw signs of a recession? Unemployment started to increase in 2008. Foreclosures started to increase? Could some of the foreclosure crisis be attributed to those funky stated income and no doc loans, not proving borrowers incomes? And then allowing 100% financing on no doc loans? Come on.. think about it.
Conclusion : So, do you really think having no skin or less skin in the game is an issue? Were FHA loans and VA loans not performing well previous to 2007, when the economy was much better? These types of loans with no or low down payments were doing fine.
How about those that jump up and say, "I want to buy a house now, but I have no money down and credit scores of 580." Would it kill you to wait a year, work on your credit and save some money, and not just for your down payment. I wrote about your goals, budgeting, and some questions that you should ask yourself to be in a better position when buying a new home. How about being pro-active and have money saved and left over even after you close on your new home. What kind of mortgage payment can I afford and how should I budget properly prior to purchasing my new home.
"Think smart and don't act on emotion or wants, but what you need." ~ Jeff belonger
Loan Comparisons - Here is a FHA vs Conventional comparison even with 10% down - Showing that in my opinion, the pricing adjustments even now, make FHA a better loan option. FHA loans vs Conventional loans with 10% down
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For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc