Denver Real Estate Financial News
It wasn't very long ago that low down payments were a thing of the past, or so we thought. Well as the pendulum swings here were are again! Banks have decided they are in the business of lending money's and well I guess they are right!
Bank of America announced to today a new program that requires only 3% down for a mortgage with a FICO credit score of 660. The best part is they aren't requiring private mortgage insurance which typically goes along with any mortgage financing that isn't 20% down or more! (Here's the Bank of America article on Housing Wire)
FHA makes you pay and pay and pay...
By comparison the only product low down payment options is the Government backed FHA loans which allow a low down of 3.5% but requires an additional MIP (Mortgage Insurance Premium) which is much like private mortgage insurance, but these loans have a LIFETIME requirement of paying that MIP. Once upon a time FHA mortgage holders could get rid of their MIP once they acquired equity in their home of at least 20%, but those days are gone.
The other big difference with FHA is the possibility of borrowers to get an FHA loan with a much lower FICO credit score.
In a nutshell, FHA Loans cost more. Only buyers who have a low credit score should get an FHA loan. But do so with a plan! Take the loan, improve your score then refinance into a Conventional loan where you aren't paying MIP for the term of the loan!
If you are a borrower, you may be thinking it is wise to have insurance on a home for the lifetime of the loan. Well that is true if you are talking homeowner's insurance as in hazard insurance. Homeowner/hazard insurance is NOT the same as Mortgage Insurance (MIP/PMI). Mortgage Insurance Premium and Private Mortgage Insurance only insure the bank against your default. That means YOU get to PAY for the MIP/PMI on the banks behalf.
The only way you benefit from paying MIP/PMI is if you need a home and cannot come up with the 20% down or you have a low FICO Credit score (minimum of 640 to 660), then a FHA loan will be the answer to your prayers.
On the other hand if your FICO score is above 660 and you have a 5% downpayment, a Conventional loan will save you money over the long run.
I have 5% or more to put down, what do I do?
Give me a call. I can provide you with lender contacts who know how to counsel you and help you save money in your home purchase. The financial industry has an vast assortment of home loan options, some are better than others. It helps to have a knowledgable professional assist you in finding the right option for you.