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With FHA-insured mortgage rates being quoted at about 0.750% lower than comparable conventional loan rates, home buyers often expect a significant savings on their monthly payment by choosing a FHA mortgage to finance the purchase of their new home.
This is not always the case. FHA imposes an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75% to all its borrowers. This UFMIP is usually added to the base loan amount increasing the borrowers’ total loan amount and essentially cutting the equity created by their small down payment in half. In addition, FHA charges an annual Mortgage Insurance Premium (MIP) of 1.25% that is divided by 12 and added to the monthly mortgage payment.
Here’s an example: A First Home Buyer purchases a single-family house for $155,000 and makes the minimum 3.5% ($5,425) down payment. Their base loan amount is $149,575. The UFMIP of $2618 is added to this base increasing the total loan amount to $152,193. The monthly principal and interest payment is calculated on this total loan amount. Using a 3.25% interest rate, the monthly mortgage payment is $662.04. Added to this payment is 1/12 of the annual MIP ($155.81) increasing the total monthly mortgage obligation $817.84. If taxes are $250 per month and Homeowners insurance (HOI)is $60 per month, the First Home Buyer’s total monthly obligation…Mortgage Principal and Interest + MIP + Taxes + Insurance…would be about $1,128 each month.
By comparison, and without going into much detail, payments on a 4.00% rate conventional mortgage with a 5.00% down payment could be about $820.00 per month including MI (plus taxes and HOI).
Why So Expensive? Overall, Mortgage Insurance premiums on a FHA-insured mortgage are much higher than a comparable conventional loan. And this is from a government agency supposedly committed to making it easier and less expensive for First Home Buyers to get into the housing market.
Why? This is because the FHA had a whole lot of loan defaults between 2008 and 2011 and its reserve funds are way below what is required by law. In order to remain solvent, FHA has increase mortgage insurance rates 4 times in the last 4 years. Yes, new home buyers are paying for the sins of the past. Plus, it is expected that premiums will increase again in 2013…we just don’t know how soon.
The Good News! When FHA does increase their premiums, all existing FHA-insured borrowers will still pay their current interest rate and MIP premium. So if you are looking to buy your First Home and take advantage of an FHA-insured mortgage the sooner the better…really!
Call Me to review you mortgage options and take advantage of my FREE Mortgage Pre-Approval service. I’m here to help.
The decision to buy a new home is probably the most important financial decision families will make. Yet many give little thought to finding the real estate agent best suited to their needs. Choosing the right agent can save you time, effort and aggravation in finding the perfect home at a price you can afford.
Today, 85% of all home buyers go on-line to search for homes. Then they call the listing agent for more information and to request a showing. When you see a house for sale and call the agent listed on the sign, that agent’s first concern will be representing the seller, not you, the buyer. Experts suggest that buyers should avoid “dual agencies” … agencies that represent both the buyer and the seller. It is felt that the same person cannot equally represent both the buyer and the seller. It might be wiser to select your own agent first; someone who will understand what you want; what your needs are; and can help you navigate through the system.
And the system is a lot more complicated than just finding your dream home. A good agent for you is an experienced professional who will listen to you, conduct herself in an ethical manner and knows your market. All Realtors ® are real estate agents, but not all real estate agents are Realtors ®. Both are licensed by the state to sell real estate and to represent buyers in the purchase of real estate. Realtors ® belong to the National Association of Realtors and must abide by a strict Code of Ethics that is policed quite rigorously by the local Board of Realtors. Realtors ® have access to Multiple Listing Services (MLS) through which members share listings of homes for sale in the local market.
Here are some thoughts on how to select the right agent for you:
1. First and foremost, how do you find a good agent? There are a number of ways to determine who you are going to interview including:
• Word-of-Mouth Referrals: Ask your friends and family for recommendations is a good way to get started.
• Open Houses: Stop by and Open House or two on a Sunday afternoon to meet some real estate agents, see them at work, and ask them questions.
• Local Advertising: Real estate agents who are advertising are active in the market and are likely representing other buyers and sellers in the area.
• Using On-Line Resources: Searching the web to get a feeling for who’s out there that can help. A real estate agents website can say a lot about their business.
2. Be Honest! It’s important to be candid with the real estate agents you are interviewing about what your needs are. Are you a first-time homebuyer? Are you moving up to a bigger home or are you downsizing? Let your real estate prospects know if you are looking for a listing agent; a buyer’s agent; or both.
3. Decide what type of agent you are comfortable in working with. Most real estate agents work alone which means that they will always be the one to return your calls and answer your questions. Sometimes agents will for or with a team to best service their clients. Know what you are comfortable with and ask the real estate agents you are interviewing about their specific situation.
4. What’s a good time for you? Part of working with a real estate agent is having an understanding of their availability. Most real estate agents work around the clock. They live with their cell phone in their pocket. However, they do have personal commitments to attend to. Make sure the real estate agent you hire has the availability when you need it so that you can avoid being frustrated with an absence of returned phone-calls or communication.
5. Be clear about your service expectations. Most real estate agents will present you with a package of marketing tactics that they use to help them sell properties, or find properties if you are a homebuyer. Some tools are more relevant than others. It’s important t to listen to what the real estate agents have to say as they know your market, what potential homebuyers are looking for, and what tools will work best in your area.
6. Do you need industry partners? When buying a home for the first time, there are some industry partners that need to be taken into consideration. Are you relocating and need assistance in finding the best moving company? Do you need an attorney that can fulfill the contract requirements of the home? What about home inspections or mortgage brokers? Let the real estate agent you are interviewing understand where you might be looking for help. Someone with connections in the industry might be a better option if you need good contacts.
7. Commissions! In CT, the seller pays the real estate agent’s commission. It is not a buyer’s expense. Still if you are a first-time-homebuyer, or even a second time buyer, don’t be afraid to bring up the subject just to be sure there are no misunderstandings down the road.
8. Special Requests. If you have any special requests, requirements, or information that could help prospective real estate agents get a better feel for what you are looking for. Don’t be afraid to lay them on the table. These could range from having, or not having, a pool; an in-law apartment; wheelchair or other handicap requirements, proximity to public transit, schools, highways and more. The more the agent understands your wants and needs at the beginning of your relationship, the better they will be able to service you in the long-run.
9. Be Realistic! You need to set a realistic budget. A prudent agent will not spend a lot of time and energy with potential buyers until they have been Pre-Approved for a mortgage by a mortgage professional. Share the information on the size of a house you can buy and the amount of a mortgage you can afford with the agent. Talk to the real estate agent about your expectations and have them give you their expert opinions. This is their area of expertise. Ask the real estate agent about their thoughts on what your expectations should be. A good real estate agent should be able to advise you on areas that might work for you, or if you need to re-think your situation based on budget.
10. Be Courteous. Like everyone else, real estate agents are hired to do a job. They work hard on your behalf to help you find the best fit for the house you are looking to buy. It’s important to be courteous with the agent you finally choose to represent you and to ensure you are providing them with the information they need in order to provide you with the service and results you expect from a professional.
Good Luck with your search. Give me a call to review your mortgage options and to take advantage of my FREE Pre-Approval service. Then you can call your agent to request a showing of your dream home ready to make an offer.