Who wouldn’t want their home loan paid off in 15 years? Interest rates are at historic lows and mortgage underwriting guidelines are changing so now may be the time to consider a 15 year fixed rate FHA mortgage loan. There are many benefits to a 15 year fixed rate FHA mortgage loan. Should you consider a 15 year FHA loan?
15 year fixed rate FHA mortgage loans allow homeowners to take cash out of their home without monthly mortgage insurance. FHA loans allow borrowers to cash out their equity up to 85% of the value of their home. Many homeowners can consolidate debt which will lower their overall monthly payments and cut years off their existing mortgage. Fannie Mae and Freddie Mac conforming conventional loans require homeowners to pay mortgage insurance when they borrow more than 80% of the value of their home.
15 year fixed rate FHA mortgage loans benefit from recent FHA mortgage guideline changes. HUD recently announced that the upfront mortgage insurance charged on FHA loans will decrease from 2.25% of the loan amount to 1.00%. This means less cost for FHA loans. The cost of upfront mortgage insurance for a 15 year fixed rate mortgage loan with a $250,000 loan amount has decreased from $5,625 to $2,500.
15 year fixed rate FHA mortgage loans allow you to finance a new home purchase with a loan amount up to 96.5% loan to value with minimal annual mortgage insurance. A down payment of 3.5% can make you a homeowner. The annual mortgage insurance rate is a very reasonable .25% and the mortgage insurance is only required if you borrow more than 90% of the value of your home. 30 year FHA loans will soon charge up to .90% for mortgage insurance and conventional loans mortgage insurance premiums for 15 year loans can be up to .94% with guidelines that are stricter than FHA loans. Conforming 15 year fixed rate loans often require a down payment of 5% of the purchase price. The 15 year fixed rate FHA mortgage offers buyers to put less down and has a lower monthly mortgage insurance payment than conventional loans.
15 year fixed rate FHA mortgage loans allow borrowers to refinance their existing mortgage loans up to 97.75% of the value of their home. Little equity is required to refinance utilizing a FHA mortgage. FHA considers paying off a first and second mortgage a rate and term refinance as long as the second mortgage is over 12 months old and if you hold a home equity line of credit, you have not withdrawn more than $1,000 in the most recent 12 months. If your second mortgage was used for anything aside from the purchase of your home, conventional financing considers the transaction as cash out. Property values are appreciating very slowly and in some areas they have continued to decline. Standard conforming conventional financing will only allow a rate and term refinance up to 95% of the value of the home and will require more costly mortgage insurance. Being able to finance up to 97.75% loan to value allows more borrowers to take advantage of lower rates with less or no money needed at closing than conventional loans.
15 year fixed rate FHA mortgage loans have lower interest rates than fixed rates with longer terms. Typically 15 year loans will be .25-.5% lower than 30 year fixed rate loans. The difference is more dramatic if your credit score is below 720 or you are seeking a cash-out loan.
There are many benefits to a 15 year fixed rate FHA mortgage loan. Whether you are buying your first home, seeking to get rid of credit card balances with a debt consolidation loan or just trying to pay off your existing loan faster, 15 year fixed rate FHA mortgage loans should be one of the options you examine during your next real estate transaction.
Sources:
MORTGAGEE LETTER 2010-28
Calculating Maximum Mortgage Amounts on Purchases
No Cash Out Refinance Transactions With an Appraisal
Loan-Level Price Adjustment (LLPA) Matrix and Adverse Market Delivery Charge (AMDC) Information
