Private mortgage insurance companies return to market
  • Traditionally, the FHA enabled low- to moderate-income borrowers to put down as little as 3.5 percent as a down payment on a home.  Beginning this month, down-payment requirements on loans insured by the FHA have increased to 10 percent for borrowers with credit scores below 580.  Borrowers with credit scores of 580 or above still will be able to put down the traditional 3.5 percent.
  • Other changes to the FHA mortgage program include increasing the upfront mortgage insurance premium from 1.75 percent to 2.25 percent and reducing permissible seller concessions from 6 percent of the loan amount to 3 percent.  The FHA also has asked Congress for authority to increase the maximum monthly insurance fee from the current 0.5 percent level to 1.55 percent.
  • Resulting from the more-stringent FHA policies, fewer borrowers qualify for government-insured mortgages and are turning to private mortgage insurers, who also have made changes to their borrower requirements.  For example, one private mortgage insurance company now will insure five-percent down-payment loans to borrowers nationwide.  Previously, such mortgages were not available to borrowers in markets with declining home prices, which included California.
Premiums for both private mortgage insurance and government-insured FHA loans may be tax deductible.  Additionally, in most instances, coverage can be canceled when the borrower’s equity reaches 20 percent of the original loan amount.  Borrowers are advised to review both options to decide which one works best for their situation.