Rates Improve Again As Economy Cools; Private Mortgage Insurance vs. FHA (again)

30 Year Fixed Rate Loan at Cost of One Point: 4.25%*

Rates improved again for two reasons. First, recent reports indicate that the Service Sector of economy is growing at much slower rate than expected. Also, investors are once again realizing that mortgages, with their higher returns than Treasuries, might make better investments than treasuries. This drives rates down further.

The ridiculously tight underwriting standards that so grate on all of us have the upside benefit of making mortgages more appealing to investors, and thus keeping rates down.

We were asked again about the upside of Private Mortgage Insurance (PMI) financing vs. FHA financing. PMI has NO "Up Front" fee at all, while FHA has a 2.25% (of the loan amount) Up Front Funding Fee.

Also, buyers can get out of PMI as soon as they prove they have sufficient equity with an appraisal. FHA requires MI for a minimum of 5 years, no matter what.

PMI, however, has much tighter underwriting and credit score standards, and is only available for very strong borrowers.

FHA loans are ASSUMABLE, and no conventional loans are assumable whether there is PMI or not. This is a feature that might make FHA financing more desirable in this low-rate environment even if PMI is readily available to a strong borrower.

Jay Voorhees and Heejin Kim at (925) 855-4491