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FHA loans are designed to help individuals take advantage of the benefits of home ownership, and these loans have low down payment requirements. However, for borrowers who choose to make a down payment that is less than 20 percent of the sales price, the borrower will be required to pay a mortgage insurance premium with the monthly mortgage payment.
This premium is in place to minimize the risk that the mortgage lender takes when making a low down payment loan, but it does result in a higher monthly mortgage payment for the homeowner. Not long ago, the FHA has announced a lower rate for FHA mortgage insurance premiums, and this can help home buyers save money.
In the recent past, the FHA premium rate sat at a level of 1.35 percent of the loan value. Today, that level is 0.85 percent. This saves home buyers hundreds of dollars per year in reduced mortgage payments, making homeownership more affordable.
The mortgage insurance premium is in place on low down payment loans until the home equity has accrued to at least 20 percent of the home’s value. This equity is essentially built up between principal reduction with regular monthly payments and increasing property values, but homeowners typically will need to prove that the equity is present before the mortgage insurance premium can be removed from the monthly payment.
As a home buyer, it is important to know that you may be responsible for the mortgage insurance premium for several years or longer. Therefore, this reduced premium can result in considerable savings for you over time. You can use an online calculator to determine your actual savings and to calculate your monthly payment based on the new rate.
If you have not qualified for a mortgage in the past due to the addition of a mortgage insurance premium, you may consider contacting a mortgage representative about your current options. The reduction in the premium rate will help many to qualify for the loan amount that they need, and you can speak with a representative about your financing needs and to request an estimate for your mortgage payment.
Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We currently lend in all of Washington, Oregon, Idaho, and Colorado. Since 1992, we have been offering borrowers various mortgage programs. Please contact us if you have mortgage-related questions.
Military borrowers have three major loan programs to choose from when they want to secure a home loan: FHA, VA, and conventional loans. Read on to find out more and to check out our loan limits tool.
Home buyers are often drawn to the FHA mortgage program due to the low interest rates, low closing costs and generally attractive loan terms. However, there will come a time when many who have an FHA mortgage will want to refinance.