The New Year is in full swing, and that means this might be the perfect time to analyze your finances and determine whether or not this is the right time to take advantage of an FHA mortgage. While everyone’s situation is different, it may be worth the time and effort to look really hard at other options because the current mortgage rates have hit an all time low.
Mortgage Rates and Insurance Premiums
Time may be running out to secure an FHA loan at the lowest rate possible. This isn’t because the rates are expected to suddenly go back up, but because the FHA has been forced to raise its mortgage insurance premium schedule five times during 2012 and is expected to do so again this year.
What this means to the average home buyer is that, despite the declining mortgage rates, monthly payments may not actually go down all that much.
What Happened to the MIP?
It’s important to remember that the FHA does not make any loans. In this sense it is actually similar to the VA house loan in that they only guarantee a certain loan amount and repay the lender if the homebuyer defaults on the mortgage. In this case the FHA must charge the insurance premium so they’ll have the necessary funds to cover those loans.
Unfortunately, due to the number of bad loans over the last decade or so, the FHA soon ran out of the money to cover them all. This inevitably led to higher rates to try and keep up.
On top of this, there is talk of new congressional legislation that will raise the FHA mortgage insurance on all new loans and lower the maximum FHA loan size. These changes could have a serious impact on how you eventually buy your home.
Is This the Right Time?
While it is true that the MIP is going up, the mortgage rates are going down faster. This means, on the whole, it is still a great time to acquire your home loan. In the last 5 years the mortgage rate has dropped more than 3% while the MIP has only gone up about 1.25%. So while this will offset some of your potential savings, one needs to remember that mortgage rates are still at an all time low and this may be a great time to lock in those rates.
Even if the new legislation goes through, one would be exempted from the changes if they lock in their FHA loan before it happens.
A New Year and a New Loan
It is also important to note that the guidelines for an FHA Streamline Refinance are expected to change in 2013. This may have an impact on your financial plans and limit the possible benefits of refinancing. The good news is that if you got an FHA mortgage on or before May 31, 2009, you will be eligible for a special reduced mortgage insurance program that will keep your rates much lower. Although there may be a slightly higher premium to pay to refinance now, it will be less than waiting until later in the year.
Don’t wait to consider all of the options. When the mortgage rate so low, this may be the perfect time to get started and take advantage of the current rates.