I have been dreaming about buying a house for years, pretty much since I moved out on my own and realized that apartment rent doesn't come cheap. Nearly ten years later I was I tired of paying money and not having anything more than an apartment lease to show for it. I was ready to become a homeowner and put a plan into action. In the last year I've raised my credit score, pre-qualified for a mortgage, met with two real estate agents, and seriously started looking for a home of my own. Of course, both agents suggested a loan backed by the Federal Housing Administration. It seemed like a good idea but now I'm not so sure.
According to CNNMoney, the FHA recently announced that they plan to increase their insurance premiums by 10 basis points, or roughly 0.1 percent on most new mortgages. If I put 5 percent or more down on a 30 year mortgage, I'll pay 1.3 percent of my outstanding balance in premiums. If I put less than 5 percent down, I'll pay 1.35 percent of my outstanding balance in premiums.
And it gets worse. In 2001, the FHA started a policy that let borrowers stop paying premiums as soon as their debt dropped below 78 percent of the principle balance. Now the FHA says that most borrowers will pay insurance premiums for the life of their loan, according to CNNMoney.
After learning about the price hike, I'm not so sure the FHA is the best route for my mortgage needs. The first real estate agent I worked with recommended a FHA backed loan simply because she thought they were a reliable company, and I'd agree that they are. The second real estate agent I worked with recommended the FHA because they're famous for backing mortgages with a low down payment. The real estate agent told me that I could pay five percent down, or less in some cases.
Since I'm buying the house on my own and didn't have a ton of money saved up the idea of having to pay a smaller cost upfront is very appealing, but the idea of paying an extra 1.3 percent of my balance for the life of my mortgage isn't. On top of paying the down payment, closing costs, and interest on the loan, I'll end up paying another fee for 30 years. I'd rather save up 20 percent down and get a conventional mortgage so I can bypass the personal mortgage insurance premiums altogether.
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