We have a buyer putting down 30% on a $400,000 purchase, and she can ONLY get FHA financing, and she still has to pay for MI (both the monthly rate of 1.10% divided by 12, and the Up Front fee of 1%). And, she has to keep MI for 5 years.
This illustrates two points: (1) FHA borrowers seeking ARMs or 30 Year Loans* must purchase mortgage insurance and keep it for 5 years no matter how much they put down; and (2) sometimes borrowers with very large down payments are forced to use FHA financing.
*For 15 Year Loans, there are significant MI exceptions, but few FHA borrowers seek or can afford 15 year loans.
Our borrower above has to use FHA financing because Fannie and Freddie will not allow the use of her alimony payments for income because they are not “seasoned” for 12 months. FHA requires only 6 months of seasoning (she has been divorced 6 months.)
Finally, it is a myth that you can avoid monthly MI by paying more up front MI (for FHA). This is only the case with conventional loans and “PMI” (to be discussed tomorrow).
Call Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646