Columbus home buyers are often concerned about the amount of money needed for a down payment. Lenders became stingy during the housing downturn, requiring as much as 20% down. Many home buyers found it impossible to bring that much cash to the table.
This created large demand for FHA-backed mortgages that required only 3.5% down. FHA mortgages have dominated the market for the past few years, and big banks have taken notice.
In reaction, some banks are reducing their own down payment requirements to 5%. They are trying to compete with FHA mortgages – and in this contest, the home buyer is the winner as mortgage conditions improve.
However, any mortgage with less than 20% down has a string attached. Understanding the competitive distinctions between FHA loans and bank-issued mortgages can help you make the right choice!
Why PMI and MIP Rules Matter to Columbus Home Buyers
You might come out ahead with a bank-issued mortgage, because banks are treating Private Mortgage Insurance (PMI) differently than FHA loans, which have a Mortgage Insurance Premium (MIP). Both MIP and PMI protects the lender against financial loss if you fail to pay your mortgage.
Naturally, the smaller your down payment, the more risk to the lender. It’s customary to have mortgage insurance required on your home loan whenever you have less than 20% down, no matter who your lender is.
Understanding these rules matter, because the presence of PMI or MIP can add another $75 or more to your monthly mortgage payment. The actual cost will vary depending on the type of mortgage, the amount borrowed, your down payment amount and other factors.
Can you ever get rid of these premiums? This depends on your type of mortgage!
- FHA mortgages: MIP is now required for the life of the loan.
- Bank-issused mortgages: PMI may be waived once you achieve 20% equity in your home. You may accomplish this by making extra principal payments, or by proving that your home has appreciated in value, or both.
Guidance for Columbus Metro Home Buying
There are other differences in mortgage types, namely in the underwriting requirements. FHA loans usually allow lower credit scores, but charge slightly higher interest. The loan that is right for you depends on your personal situation. You should consult with a reputable mortgage lender to learn more about these details.
We can help you by referring you to trustworthy mortgage professionals who will look at your situation and provide sound advice. As your Exclusive Buyer’s Broker, we are always ready to help first-time home buyers in Columbus!
Contact us for help with your home buying questions! Remember, we are with you every step of the way…all the way home!
Andrew Show
Broker, CEBA, CEBA-M, CNE, CSP, ABR-M, e-PRO, GREEN
Buyer’s Resource Realty Services
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
614-888-4110 | 888-888-4110 Toll Free | 614-839-4110 Fax
