Your Money

Is It The Right Time To Buy A Home?

Posted: 8/19/2010

Understanding your mortgage financing options can save you money and could even save your home.

(NAPSI) - If you're thinking about buying a home, now might be the right time. Mortgage rates remain at historically low levels, and housing prices have yet to rebound from their recent declines.

As those conditions aren't expected to last, smart homebuyers need to consider their options, especially if they are making low down payments.

There are two main options for first-time buyers and others putting less than 20 percent down: loans insured by the Federal Housing Administration (FHA) and loans insured by private mortgage insurance (PMI). Premiums are tax deductible, and the insurance may be cancelable when equity in the home reaches 20 percent. Both programs have changed in the past year, and more changes may be ahead.

While FHA pricing has often been more favorable compared to PMI, rates are going up.

Earlier this year, the up-front premium required on FHA loans jumped from 1.75 percent to 2.25 percent of the base loan amount, adding $1,000 to a $200,000 mortgage. Now the FHA wants to raise its maximum mortgage insurance premium, a change that could take the monthly premium on a $200,000 mortgage from $92 to $125.

PMI offers many premium plan structures that now make pricing very competitive. In general, PMI pricing is more affordable than FHA's for borrowers putting down 10−15 percent and can match FHA on loans with 5 percent down.

The minimum required FHA down payment is 3.5 percent, but new credit guidelines require a credit score of 580 to qualify for the 3.5 percent program. Borrowers with less than a 580 credit score must put at least 10 percent down.

PMI mortgages with 5 percent down are available nationwide, with 3 percent down for some loans that meet Affordable Housing Guidelines.

PMI can also offer extra benefits at no extra cost to the borrower. Genworth Financial, for example, purchases job loss protection that helps make a borrower's mortgage payment (principal, interest, taxes and insurance) in the event of involuntary unemployment up to $2,000 a month for up to six months during the benefit period, with a maximum of three monthly payments per job loss occurrence.

Genworth also provides free homeowner assistance to borrowers in financial difficulty as long as they have mortgage insurance with the company. In 2009, it completed nearly 20,000 mortgage workouts, saving over $2.6 billion of mortgages from foreclosure.

More information is available at www.SmarterMI.com/MI-vs-FHA.aspx.