Paying a Premium
QUESTION:
We’re buying a property with a sale price of $250,000 with 30 percent down. If we finance with an FHA loan do we still have to pay mortgage insurance?
ANSWER:
Yes. The FHA program requires that borrowers pay an up-front mortgage insurance premium (1 percent) plus an annual MIP. The annual MIP must be paid for at least five years.
However, why finance with an FHA loan? With 30 percent down you likely qualify for a conventional loan with no mortgage insurance. Speak with local lenders for details.
QUESTION:
Is it true that reverse mortgage costs have come down?
ANSWER:
Here’s what’s true: The FHA now insures both a regular home equity conversation mortgage loan (the Standard HECM) and the HECM Saver. The Saver program began in October, and the basic deal is this:
The amount of the up-front mortgage insurance premium is just 0.1 percent for the Saver versus 2 percent for the standard premium. For a $200,000 mortgage the fee for the Saver program would be just $20, while it would amount to $2,000 for the standard HECM. The annual insurance premium for both programs is the same – 1.25 percent of the outstanding loan balance.
Why is HUD offering such a low up-front premium for the HECM Saver? First, HUD gets something for the lower premium: lower loan-to-value ratios with the Saver program, which means less insurance risk. Second, the lower up-front premium might spur interest in the program, thus producing more unit volume. Third, it may be that some current reverse-mortgage borrowers will refinance into a HECM Saver to get a higher loan amount while reducing risk to HUD at the same time.
Reverse mortgages work for some borrowers, and they don’t for others. To find out more, speak with lenders, attorneys who specialize in “elder law” and fee-only financial planners. Help is available from HUD-approved counselors by calling 800.569.4287.
