Written By: Glenn Michaels, Op-Ed Writer
The conventional mortgage market is changing as of November 16, 2013. Federal National Mortgage Association also known as Fannie Mae has announced that as of November 16, 2013 they will no longer purchase any mortgage with a loan to value higher than 95%.
Even though FHA mortgage insured loan are more expensive than conventional mortgage loans, where are borrowers going to obtain financing higher than 95%?
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The answer currently is government loans, VA and FHA loans. If a borrower is an active duty member of the United States Military or a honorable discharged veteran of the United State Military the borrower can obtain VA mortgage financing if they qualify up to 100% financing or “no money down” together with a 4% sales concession is needed.
The FHA borrower can obtain 96.5% mortgage financing or 3.5% down with a 6% sales concession if needed.
Both government loans are more expensive than a conventional loan. If a borrower obtains a conventional mortgage loan the borrower will be required to put a minimum of five (5%) percent down and also a seller concession that could vary depending on the initial loan to value. The sales concession could be six (6%) as well obtaining Private Mortgage Insurance.
Private Mortgage Insurance can be difficult to qualify for.
Borrowers that obtain 100% VA financing will have a funding fee as high a 3.30%. This fee is always added to the mortgage that the borrower is taking. The VA Funding Fee is always financed.
Borrowers who obtain 96.50% FHA financing must have an Upfront Mortgage Insurance Premium added to the calculated base mortgage loan. Currently the Up Front Mortgage Insurance Premium is 1.75%. Borrowers have a choice to pay the entire Up Front Mortgage Insurance Premium in cash at closing or to finance the entire Upfront Mortgage Insurance Premium resulting in a higher loan amount and higher mortgage payment.
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The Monthly Mortgage Insurance Premium term has been increased recently. In some cases the monthly mortgage insurance premium must be paid the entire term of the mortgage. In addition the monthly mortgage insurance premiums also increased.
Even with the increased costs associated with the government loans borrowers with minimum down payments will still go with these government programs.
About The Author
Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
