<h2>Low Down Payment - Lending Options “Getting The Best Payment Possible”</h2>

With lending options being very limited these days, for those wanting to buy a home with a small down payment. One of the biggest loan options for the past few years has been FHA, which only requires a 3-1/2% down payment, but FHA recently announced some expensive increases to those home buyers who would like to use the program utilizing the 3-1/2% down payment.

Effective April 1st the UFMIP (up front mortgage insurance premium) will increase from its current 1% to 1.75% fee and the monthly MIP (mortgage insurance premium) will also increase. The impact to the FHA home-buyer is higher monthly payments as shown in the example below using a $250,000.00 Purchase Example:

Current FHA
• Down Payment (3-1/2%) = $8,750.00
• Base Loan Amount - $241,250.00
• UFMIP (financed into loan) @ 1% - $2,413.00
• Financed Loan Amount - $243,663.00
• FHA 30 yr. Fixed Rate Mortgage @ 3.750% (this is not an offer to lend, only being used in example, so no APR is being provided)
• Monthly P&I Payment $1,128.44
• Monthly MIP @ 1.15% (mortgage insurance) - $233.51
• Total Payment P&I + MIP = $1,361.95 (plus taxes & homeowners insurance)

FHA after April 1st
• Down Payment (3-1/2%) = $8,750.00
• Base Loan Amount - $241,250.00
• UFMIP (financed into loan) @ 1.75% - $4,223.00
• Financed Loan Amount - $245,473.00
• FHA 30 yr. Fixed Rate Mortgage @ 3.750% (this is not an offer to lend, only being used in example, so no APR is being provided)
• Monthly P&I Payment $1,136.82
• Monthly MIP @ 1.25% (mortgage insurance) - $255.70
• Total Payment P&I + MIP = $1,392.52 (plus taxes & homeowners insurance)

The payment increases by $30.57 per month.

Another option available to home buyers is utilizing Conventional (Fannie Mae – Freddie Mac) type loan with 5% down payment and using LPMI (lender paid mortgage insurance) This option increases the interest rate over the standard BPMI (borrower paid mortgage insurance) that is standard in the mortgage market today. Here is an example using this mortgage option vs. using FHA

Home Purchase Price $250,000.00 with 5% down payment and LPMI option:

• Down Payment (5%) = $12,500.00
• Financed Loan Amount - $237,500
• 30 yr. Fixed Rate Mortgage LMPI @ 4.625% (this is not an offer to lend, only being used in example, so no APR is being provided)
• Total Monthly P&I Payment $1,221.08

This monthly payment is $171.44 less per month vs. the FHA option.

That’s over $2,000 a year in lower payments and has a bigger impact on income tax deductions, since the interest paid on your mortgage is tax deductible but mortgage insurance premiums are not. The conventional 95% loan is also available as the standard BPMI (borrower paid mortgage insurance) and the rate is lower by around .750% but once you factor the monthly MI payment, estimated at over $125 month to your P&I payment, the total payment PI + MI = $1,241.81 is $20.00 per month higher than the LPMI option with no MI. This is still a lower payment option than the FHA lending option.

In considering these conventional options LMPI vs. BPMI, the length of time you keep the property is very important since mortgage insurance does decline as the principle balance decreases, and once below 80% LTV (loan to value) based on the original purchase price, the mortgage insurance goes away. Then the lower interest rate with MI makes more sense over a longer period of time due to paying less in interest to the lender in buying the home.

Every borrower and purchase is unique and a detailed analysis should be performed to give the clients (buyers) options that best suite their goals and objectives.