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2015 is starting out to be a great year for Michigan first time home buyers due to several positive changes in what’s required to get a home loan. For instance, both Fannie Mae and Freddie Mac, the government sponsored enterprises that back the majority of conventional loans, have recently reduced down payment requirements from 5% down to 3%. This reduction in down payment will allow more first time home buyers, that may have been short on the 5% requirement, to enter the market to purchase a home.
On top of the reduced down payment requirements, lenders have also reintroduced lender paid mortgage insurance programs. Typically, when purchasing a home with a conventional loan and a down payment below 20%, the borrower will be required to pay mortgage insurance. This mortgage insurance is a small percentage of the loan amount between approximately 0.23 – 1.48% annually and it’s dependent upon the borrowers credit score and the loan to value on the loan.
Lender paid mortgage insurance allows borrowers to bypass the monthly mortgage insurance in exchange for a higher interest rate over the life of the loan. This can create some additional savings for high credit score borrowers and a good loan officer will be able to provide a comparison for anyone looking to pursue this option.
“Lowering the down payment requirements on Conventional loans is definitely a step in the right direction for our Michigan housing market”, says Jason Nolan, president of Michigan Mortgage Solutions. “These calculated measures will put more buyers in the market which will help homes sell at a faster pace. More buyers equal more competition which will drive selling prices up and help stimulate our local economy. Additionally, when people buy houses they spend more money, especially at places like home improvement stores.”
Shortly after Fannie and Freddie announced the reduced 3% down payment requirements, FHA announced a reduction in the annual mortgage insurance premium required from 1.35% to 0.85%. It’s believed that this 50 basis point reduction in annual mortgage insurance is a direct response to Fannie and Freddie’s announcement to allow first time home buyers to get a non-FHA mortgage with as little as 3% down (FHA loans require 3.5%).
Mortgage insurance premiums on FHA loans have been steadily increasing over the past few years but the 3.5% down payment allowed FHA to control the market for those that didn’t have 5% to put down on a conventional loan. Now that the down payment requirements are lower on Conventional loans, FHA has countered with the reduction in mortgage insurance premiums creating true competition for first time buyers in Michigan.
“It’s taken a few years for FHA to shore up its capital reserves to avoid needing another bailout and the agency certainly doesn’t want to start losing first time buyers to the new conventional loan options”, says Jason Nolan. “With FHA loans becoming more affordable, renters looking to buy a home will have more options. More competition for mortgage loans equals big time savings for borrowers.”
These announcements stand to create a very large impact on housing in 2015. As rents continue to rise, buying a home continues to be an attractive option. Saving for a down payment used to be a barrier for entry for many first time buyers and now the tables have turned. The Federal Reserve recently reported that almost half of all renters were waiting to buy a home because there wasn’t enough savings for a down payment. There are over 41 million renter occupied housing units nationwide and now approximately 18 million of those renters have an opportunity to purchase a home.
Here’s a great video discussing these updates for first time home buyers;
This is truly exciting news and should help many Michigan families finally start realizing the dream and benefits of home ownership. Contacting a trustworthy and knowledgeable mortgage lender should be the first step for any first time buyer wanting to explore these mortgage options.
About Michigan Mortgage Solutions
Michigan Mortgage Solutions was founded in 1998 and serves the Michigan Real Estate industry. Known best for specializing in First Time Home Buyer Programs in Michigan with no down payment, little to no closing costs, and incredibly low rates.
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