Many hear about historically low interest rates or excellent property bargains as incentives to buy; as of January 26, 2015, a new motivator to invest is being added to the table; mortgage insurance premiums will see a significant reduction in the New Year for FHA buyers in terms greater than 15 years.
What’s the Incentive?
There are lots of reasons to buy property; improved property values and still-historically low interest rates are two commonly cited reasons. A new reason officially released by the U.S. Department of Housing and Urban Development on January 9 is the reduction of annual Mortgage Insurance Premiums (MIPs) for those purchasing real estate with a Federal Housing Administration (FHA) loan.
How Mortgage Insurance Premiums Impact Your Pocketbook
For those who have never purchased property before, the terms associated with the transaction can be nebulous. For example, you may have tried to calculate what you think your monthly payment will be on a 30-year loan for a $250,000 house. The value of the home alone is under $700 a month; however, once you factor in interest and mortgage insurance and other things, your monthly note could be higher than $1,500 a month.
One of the things that drives up the bottom line you pay each month is your mortgage insurance premium. In a nutshell:
- Your MIP is required to protect the lender in case you cannot make payments.
- The rate is not negotiable.
- MIP cannot be canceled until your loan-to-value reaches 78%.
- MIPs are calculated in basis points (BPS) with a single BPS equaling one one-hundredth of a percent, so if you have a $200,000 mortgage, your MIP that year will be $2,000. As you pay down your premium, your MIP is adjusted accordingly.
The Details for the Lower Mortgage Insurance Premium (MIP)
Under the auspices of the new statute, a handful of positive changes for recent and prospective FHA loan holders would apply.
- Applicability Date for FHA Buyers: Case numbers assigned on or after January 26, 2015 are eligible to take advantage of lowered MIP rates.
- Applicability for Previous FHA Buyers:Case numbers issued within 30 days of January 26, 2015 are eligible for a temporary case number cancellation thus enabling those buyers to benefit from the reduced coverage.
- Term Conditions:Rates are for all Title II forward mortgages with terms greater than 15 years.
- New MIP Rates:New MIP rates for loans with terms greater than 15 years will drop by 50 BPS; this could make a difference of as much as $500 per year for every $100,000 being borrowed.
More information regarding the reduced rates will be available from your local realtor as said information is made available to them. There aren’t always excellent financial incentives to buy; however, now is one of those times where if you’ve thinking been thinking of buying property on 30A and were considering buying with an FHA loan, the fiscal motivators are definitely on the table.
There’s no place like the white sand beaches and turquoise shores of 30A to call home or your home-away-from home. If you’ve been thinking about making a move to a veritable paradise or are thinking of investing in beach real estate, contact coastal living real estate expert, Melissa Clements, your personal guide to all things 30A.