The Sneaky, Costly Little Secret of FHA Loans

Written By: Jaymi Naciri
Sunday, March 15, 2020

First, a little primer on mortgage insurance. Mortgage insurance protects lenders from losing money if you default on the loan, said NerdWallet. Most lenders require private mortgage insurance PMI for conventional loansnbsp;when the home buyer makes a down payment of less than 20. All FHA loans have mortgage insurance, regardless of down payment amount.

Mortgage insurance can cost homebuyers hundreds of dollars per month. The average annual PMI premium typically ranges from .55 percent to 2.25 percent of the original loan amount each year, according to data from Ginnie Mae and the Urban Institute, said Bankrate. With these rates, it means that for a 200,000 mortgage, your PMI can cost between 1,100 and 4,500 each year, or around 91.66 to 375 per month.

In addition, PMI can be cancelled once the home appreciates to a certain level. But FHA mortgage insurance usually remains for the life of the loan.

Getting rid of PMI

So, here youve been paying down your mortgage every month, and you also happen to live in an area where homes are appreciating nicely. Sure would be nice if you could get rid of that PMI. But, short of refinancing to another loan, thats not going to happen.nbsp;

Alternative loans

There are a number of different ways to borrow money without mortgage insurance. The first and most obvious answer is to make a 20 down payment on whatever loan you get. Many loans allow you to use gift or grant funds for your down payment, which could be a solution to getting that 20 together if need be.

Short of a generous benefactor, look into these other loans, which allow you to make a small down payment without paying monthly mortgage insurance.

Bank of Americas Affordable Loan Solution mortgage

This home loan requires just a 3 down payment with no mortgage insurance. Other features include:

Income and loan amount limits, which vary depending on the location of the home
Up to 97 loan-to-value
Loan amounts capped at 510,400 with 3 down payment; You can also make a 5 down payment for a loan amount up to 765,600 with 5 in high-cost areas
Homebuyer education may be required

Flagstar Banks Professional Loan

These loans are for individuals who are very likely to have high earning potential, but have just started in their careers, said The Mortgage Reports. Think doctors, dentists, and lawyers with their own practices. The loan requires no PMI, and very low down payments. As a bonus, student loans could be excluded from debt ratios.nbsp;

In addition to low down payments and no mortgage insurance, details include:

Loan amounts up to 1.5 million
Fixed and adjustable rate options

Neighborhood Assistance Corporation of America NACA Best in America Mortgage

The NACA loan is for low-to-moderate income individuals or buyers in underserved communities. In addition to no mortgage interest, this loan offers:

No down payment
No closing costs
Below-market rates
Flexible credit score requirement
Homeownership program required

SoFi 10 down loan

Dont have 20 for a down payment but think you might be able to cobble together 10? This loan might be the answer. SoFis 10 down loan offers:

Loan amounts up to 3 million
PMI required on conforming home loans with a loan-to-value LTV greater than 80, but not on any jumbo home loans
Great credit required

Citis HomeRun Mortgage

This mortgage requires just 3 down and no mortgage insurance, with flexible credit guidelines. In addition, loans are available up to 510,400, and 765,600 in high-cost areas.

Other features of these loans include:

Fixed rates
Interest rates comparable to conventional loan rates
Homeownership education and counseling required





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