United Guaranty Insights
Advantages of Private MI Stand Out as Article Describes Cost of FHA Mortgages as "Onerous"
By Bryon Jones, Senior Vice President, Strategic Accounts
United Guaranty Corporation
Posted on July 31, 2015
Sometimes it takes an outside perspective to shine a new light on things.
Over the years, United Guaranty has worked to spotlight the many advantages of our mortgage insurance (MI) over FHA.
In short, United Guaranty MI can be significantly less expensive than FHA over the life of the loan, and it cancels automatically when the principal balance of the loan reaches 78 percent of the original value of the property. FHA insurance cannot be cancelled when the home buyer makes a down payment of less than 10 percent. (FHA insurance remains in place for 11 years when the home buyer pays 10 percent or more down.)
The total cost of MI over the life of a loan on a $200,000 home with 3 percent down would be $36,379 with FHA and $18,480 with United Guaranty. The home buyer would save $17,899 with United Guaranty. You can get a detailed breakdown of all of the costs and assumptions in this example by visiting United Guaranty's FHA vs. MI comparison.
Added perspective on these differences appears in a recent news story in The Los Angeles Times describing the higher FHA costs as "onerous." The article goes on to say borrowers with minor credit dings are increasingly being steered into FHA mortgages with higher costs that are described as "a poor person's tax" by John Taylor, Chief Executive of the National Community Reinvestment Coalition, a financial advocacy group for lower-income and minority neighborhoods.
According to the article, borrowers with good credit are too often being routed into FHA mortgages designed for "low-income and bad-credit borrowers." In a reference to FHA mortgage insurance, reporter Scott Reckard writes, "Increasingly, working and middle-class borrowers are also paying that tax, which can amount to tens of thousands of dollars in extra costs" over the life of the loan. (See the full article, "Two-Tier System in Mortgage Market Means Higher Costs for Some Borrowers.")
Credit is loosening, but only to a degree. Fannie Mae, Freddie Mac, and FHFA are all working to encourage lending to lower-income buyers by reducing certain fees and by allowing down payments as low as 3 percent, which the GSEs approved in late 2014.
United Guaranty can help. We've developed programs for well-qualified first-time home buyers, including a dedicated Web page. Resources for Home Buyers provides detailed comparisons of the cost differences between FHA coverage and our private mortgage insurance.
Other benefits of private MI compared to FHA:
- Available on higher loan amounts.
- Available on more types of mortgages.
United Guaranty resources for home buyers also include a free online course called the Homeowners Educational Certification Program that satisfies the home ownership education requirement for affordable home programs offered by both Fannie Mae and Freddie Mac. Those programs offer qualifying first-time home buyers low down payments, lower MI premiums, and expanded eligibility requirements.
Bryon Jones is Senior Vice President, Strategic Accounts. Jones joined United Guaranty in 1998. He started in the Structured Products department, and he has served in many roles of increasing responsibility at United Guaranty, including Capital Markets, GSE Relations, and Sales. He received his B.S. in math from Western Washington University. He is a Fellow of the Casualty Actuarial Society (FCAS) and a Member of the American Academy of Actuaries (MAAA).
© United Guaranty Corporation 2015. All rights reserved. United Guaranty is a marketing term for United Guaranty Residential Insurance Company and United Guaranty Mortgage Indemnity Company and is a registered mark. Coverage is available through admitted company only.