New mortgage guidelines from Fannie Mae and Freddie Mac went into effect on Dec. 1, lower the minimum down payment from 5% to 3% in what lenders hope will kickstart a sluggish housing market.
Now the brain trust at WalletHub has released its 2014 Mortgage Insurance Report to help low-down-payment home buyers save up to $12,000 on their decision between a Federal Housing Administration loan and private mortgage insurance.
Wallethub’s report shows that FHA mortgage insurance premiums have nearly doubled since 2008.
Someone who buys a median-priced home now has to pay $17,398 in premiums during the first five years, compared to just $9,210 in 2008.
“Consumers with down payments below 20% can save $2,251 - $12,026 in just five years by choosing private mortgage insurance instead of an FHA loan,” the report finds.
The higher the credit score and down payment the borrower has, the more potential savings, of course.
FHA premiums, unlike private mortgage insurance, continue to be assessed throughout the life of a loan, even if the loan to value ratio drops below 80%.
This can create huge cost disparities over time, between private mortgage and the FHA option.
WalletHub also found that four of the largest private mortgage insurance companies charge the exact same amounts for the majority of their customers – that’s among Genworth, Radian, MGIC, and Essent.
The Mortgage Insurance Report also found that private mortgage insurance rates are down relative to 2013, having fallen by an average of 3.36% across all credit scores. The biggest drop (11.36%) has been for buyers with a credit score of at least 760 who are making a 90% LTV purchase.
“Although some PMI companies will now insure 97% LTV loans, only 12% of banks offer conventional loans with such a low down payment,” the report says. “New mortgage guidelines are expected to significantly increase the availability of such offers.”