I recently sat down with my close friend and colleague, Armen Manokian, who has been a mortgage broker for eight years. In this blog post, I will be sharing insights from our conversation about preparing to buy a home, current interest rates for mortgages, and recent changes to PMI for FHA loans.
Preparing to Buy a Home
As the housing market inventory continues to be low, Armen suggests that being prepared is the key to success. Some clients want to wait until they are fully pre-approved, while others get pre-approved way ahead of time. Armen advises being as prepared as possible to ensure that you don’t miss the window of opportunity when the perfect house becomes available.
When it comes to being prepared, Armen suggests that borrowers should have the following documents ready:
- Two years of W-2s
- One month of pay stubs
- Two months of bank statements
- Documentation of where you’re coming up with your down payment or cash to close
- Your driver’s license
Getting pre-approved doesn’t take long, and the sooner you can provide the necessary documentation, the quicker you’ll get your pre-approval. If a client gets everything submitted in the morning, Armen’s team can have a pre-approval letter out that same day.
Current Interest Rates for Mortgages
Interest rates for mortgages have been fluctuating lately, and in February we saw rates increase from 6% to near 7%. I predicted that interest rates might settle into 5% sometime this year, but Armen doesn’t see them coming down anytime soon. Interest rates may go up or down, but the market is unpredictable. We suggest you focus on affordability of your monthly payment, and if rates come down to refinance down the road.
Recent Changes to PMI for FHA Loans
PMI or Private Mortgage Insurance is required for borrowers who make a down payment of less than 20% of the home’s purchase price. Recently, there have been some changes to PMI for FHA loans, reducing the premium from 0.85 percent to 0.55 percent. This can save some buyers $100 or more per month. It is important to note that PMI never goes away on an FHA mortgage loan.
However, for Conventional loans, borrowers should keep an eye on their LTV ratio and reach out to their lender when they reach 80% to request PMI removal. Armen also mentioned that some lenders may allow borrowers to pay for an appraisal to have the LTV ratio re-calculated to remove PMI sooner.
In conclusion, buying a home requires preparation, and being prepared means having all of the necessary documentation ready to go. Interest rates may fluctuate, so focus on the affordability of your monthly payment instead. Finally, expect to see more buyers using FHA financing this year with the recent premium reduction of 0.3% which can save borrowers thousands of dollars over the life of the loan.