FHA Mortgage Insurance Premium Updates

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January 29, 2015
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In Massachusetts first-time homebuyers have multiple options for special first-time homebuyer loans. MassHousing and MHP both offer great mortgage products for new buyers that allow for a 3% down payment without the burden of paying Private Mortgage Insurance (PMI). Nationwide, however, the most popular loan with low down payment requirements is FHA. The Federal Housing Administration offers a minimum of 3.5% down and lower credit restrictions, but also demands payments for PMI. There is an upfront premium that costs 1.75% of the loan amount and is paid at the time of closing. The borrower must also pay PMI as a portion of their monthly mortgage payment for the life of the loan. Overall, PMI can cost the borrower thousands of dollars upfront and hundreds of dollars each month.

In recent months there has been good news as it pertains to PMI. In December, congress passed legislation allowing borrowers to write off their PMI payments on their 2014 taxes. This had been the case through 2013, but was disallowed for 2014 until it was reversed in December. The legislation expires in 2015, so it is yet to be seen if the PMI tax deduction will continue in the future.

In January, as we heard in President Obama’s State of the Union Address, the federal government decided to reduce the monthly PMI payments associated with FHA loans. This will save borrowers about $500 each year compared to what they were paying before the reduction.

These recent developments are good news for first-time buyers, but Massachusetts buyers should first look into MassHousing and MHP’s ONE mortgage before FHA, because they allow for a low down payment and no PMI payments. To find out more about mortgage products and the homebuying process, register for one of our upcoming Homebuying 101 classes.

See Julian Castro, Secretary of Housing and Urban Development, talk about the FHA PMI reduction and more with John Stewart from the January 26th episode of the Daily Show.