The housing market meltdown of 7 to 8 years ago changed the lending landscape at many levels, including the public vs. private markets for mortgage insurance (PMI), which is a requirement for homebuyers putting down less than 20 percent.
The Federal Housing Administration has been raising premiums. And the agency last year started requiring borrowers to buy mortgage insurance for the life of the loan — a big added expense for homeowners.
The gains in home prices have made these low down-payment loans less risky for the big banks, which can offer a better deal than the FHA.
Private lenders are also requiring borrowers to buy private mortgage insurance on less-than 20 percent down payments. However, they often only require PMI until borrowers can build up 20 percent equity in their homes.
A new report from WalletHub.com has found that private mortgage insurance has once again become a more viable and affordable option for many consumers, compared to FHA loans.
FHA mortgage insurance premiums have nearly doubled since 2008.
“One now has to pay $17,398 in premiums during the first five years after the purchase of a median-price home ($212,100), compared to just $9,210 in 2008,” WalletHub states.
Many consumers with down payments below 20 percent can save $2,251 to $12,026 in just five years by choosing private mortgage insurance, the WalletHub report finds.
Of course, the higher your credit score and the more money you are able to put down, the more potential savings from PMI.
Unlike private mortgage insurance, FHA premiums continue to be assessed throughout the life of a loan, even if your loan to value (LTV) ratio drops below 80 percent. See WalletHub’s chart below. Read the full report here.