Is it a Good Time to Buy a Home? – Maybe Not!
Posted on March 17, 2010
Filed Under Life in General | Leave a Comment
My wife and I were watching the First Time Home Buyers program on HGTV. I started to notice a pattern that caused me some concern and I mentioned it to my wife. There were quite a few couples buying homes when it would have been to their advantage to keep renting. Let me explain.
We saw two couples over the span of several programs who had well over 20% available to put down. One of the couples almost made a mistake because the future wife wanted alot more house then they could afford. Finally they came to their senses and purchased a home where they could put 20% down. On the other end of the spectrum there were couples who did not even have 10% to put down. One couple did a 85/15 split where they had to take out two loans with the smaller one at a significantly higher interest rate. Another couple didn’t even have a down payment and could barely handle unexpected closing cost. In essence, they were trying to get into a home with no money.
I shared with my wife that it would be better for many of these couples to continue renting until they had at least 20% to put down on a home. The ideal scenario would be a 15 year mortgage with at least 20% down.
The reason I am bringing this up now is because of some hype coming up soon. Is it a good time to buy a home. With all due respect to Jeff who is in the second video, it may not be. You should avoid like the plague FHA mortgage insurance.
Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA loans require mortgage insurance primarily for borrowers making a down payment of less than 20 percent.
Mortgage insurance is charged to the homeowner each month at the rate of .5 percent per year. (As Jeff noted that is about to increase significantly)
FHA’s monthly mortgage insurance payments will be automatically terminated when these conditions occur:
For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.
For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.
Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums.
Here is a verse from the Bible:
The blessing of the LORD makes a person rich, and he adds no sorrow with it. (NLT)
I think having to pay high interest rates and being forced into expensive mortgage insurance would qualify as sorrow.
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