Everett mortgage: FHA Mortgage Facts

Why does it seem that an FHA mortgage is so expensive? Because it is more expensive than a conventional mortgage.

There is a reason why it is more expensive than a conventional mortgage. On every FHA mortgage there are 2 different mortgage insurances charged. The first is called the Up Front Mortgage Insurance Premium (UFMIP). Currently that is 1.50% of the purchase price. Plus there is a monthly insurance premium. That amount is .005% of the loan amount. So in effect you pay insurance on insurance. This is how it works.

Buyer A buys a home for $200,000 even. The UFMIP is 1.5% of the purchase price so that makes the loan amount $203,000. Now let’s say the terms are a 30 year fixed FHA mortgage at 5%. That makes the principle and interest payment = $1089.75. Now an additional monthly insurance premium (MIP) is (calculated by $203,000 X .005 / 12 = $84.58) added to your monthly payment.

So you can see that you really are paying insurance on insurance.

Why would you want this mortgage? Well there a several reasons the foremost is that it’s the only one available. Unless you have sterling credit and / or you have 20% down an FHA mortgage may be the ONLY way you can buy.

Right now if you have 620 credit or better and 3.5% for a down payment you can get an FHA mortgage. You will have to jump through a whole bunch of hoops but you will get one in the end. Many lenders are going to increase the credit score minimum to 640 and have already done so. But there are still a few lenders who will do a 620 score.

There is talk of upping the UFMIP and the monthly MIP. FHA is, like every one else, experiencing an increase in delinquencies and foreclosures. One out of every six FHA mortgages is late by at least one payment and 3.32 percent were in foreclosure, the highest for both since at least 1979. If you don’t remember 1979 it had the worse economy since the great depression. The delinquency rate for prime fixed-rate mortgages, considered home loans with the least risk, rose to 5.8 percent and the foreclosure inventory rose to 1.95 percent, the highest since at least 1972.

Homeowners are falling behind on their mortgages as the U.S. has lost more than 7 million jobs since December 2007, driving the unemployment rate to 10.2 percent in October, the highest since 1983. What they are not telling you is that the real unemployment rate is closer to 17-19%. Declining home prices in most markets also are preventing many owners from selling their properties.

So as I have been saying this market and this economy will not recover until we have jobs. I mean is that so hard to figure out.

Jim Johnson