Boston Property Management: Low Down-Payment Loans
If you are in the market for a new home, this is the right time. The FHA (Federal Housing Administration) has made it easier for people to buy as they have made a 0.5 percent cut in mortgage insurance fees. Not only that but now you just need a 3.5-percent down payment loan. Big lenders such as Fannie Mae and Freddie Mac have also rolled out loans that require down payments of just 3 percent.
It won’t be easy for you to decide which loan you should get. This guide will make it easy for you.
The fine print: FHA fees
Do remember that the FHA only insures loans which lenders make. They are able to do this because they have a fund which covers loans that might not get paid. The fund is financed by borrower-paid mortgage insurance. The fund is a bit more stable so they are able to cut the fee from 1.35 percent per year to .85 percent per year (paid monthly) for 30-year fixed loans up to $417,000 with as little as 3.5 percent down.
Do remember that you also have to pay 1.75 percent of your loan amount up front in cash or by adding this extra fee to your loan amount. In the event that you get a 30 year fixed loan (With a 3.5 percent down payment), you have to pay the 85 percent annual fee as long as you have the loan. The annual mortgage isn’t tax deductible.
Boston Property Management: The Fannie and Freddie route
Fannie and Freddie require as little as 3 percent down. You will need Private Mortgage Insurance which adds 1.05 percent per year (monthly cost) for a 30 year fixed loan up to $417,000. If you pay your loan down to 78 percent of your home purchase price, you can get rid of mortgage insurance. The good thing is that your mortgage insurance is also tax deductible.
Comparing low down payment loan options
If we are to compare both the FHA and PMI loan options we get different answers. Let’s just assume that there is a $300,000 single-family home purchase using a 30-year fixed loan and a 3.5-percent down payment.
The FHA tends to be cheaper as the costs will be lower after homeowner tax deductions and also the fact that the mortgage insurance cut is lower than PMI.
In the event that your down payment is 5 percent, then the PMI drops from 1.05 percent to 0.54 percent. So make sure that your lender gives you “lender paid mortgage insurance’ as this adds the insurance to your mortgage rate and is also tax deductible. It also saves you around $100 per month after homeowner deductions.Try and work out to see which option saves you money.
We hope you liked our guide “Boston Property Management: Low Down-Payment Loans”.