Home loans insured by the federal government are becoming comparatively less competitive than privately insured loans, writes the LA Times this week. For first-times homebuyers and low-to-moderate income borrowers starting this month, private mortgage insurance looks like the less expensive option than a Federal Housing Administration-insured loan.
Due to a rise in mortgage insurance premiums that went into effect on April 1 and an effort generally for the FHA to shore up its insurance fund, the cost of FHA insurance is rising, LA times writes, which shows a comparison for a first-time homebuyer under both options.
For a borrower with a credit score of 760, and a 5% downpayment on a 30-year, $170,000 mortgage, opting for private insurance could net savings of $4,000 over time, the article finds. Even those without such a strong credit profile can benefit, the Times writes.
“Of course, most folks don’t have credit scores that high. But for nearly all borrowers who can come up with a down payment of at least 3.5% on a loan of up to $625,000, PMI is now probably the better deal,” according to the article.
In the comparison, the borrower who takes the FHA loan will face a monthly insurance premium of 1.3%, or $184, while the borrower with private insurance under insurer Genworth Financial will face less than half the premium at 0.44% or $62.
“As a result, the choice between mortgages with private mortgage insurance and those insured by Uncle Sam has never been clearer,” writes the LA Times.
Written by Elizabeth Ecker