The return of the subprime mortgage?

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IMG_9886 I have had nice time attending holiday parties recently and have been interested to hear my friends express worry about the subprime mortgage market and a return to the mortgage crisis.

In many of the predictions for 2015 we also hear that our millennial generation is going to enter the first-time homebuyer market this year as the economy is getting better and unemployment is down. We have also heard predictions that interest rates are going to start going up.

I think this article from the Wall Street Journal addresses the topic well and points to tighter lending standards.

Through open houses I have met many first-time home buyers and a few of them have been very disappointed that they still could not qualify for a mortgage. Despite having two incomes their debt-to-income ratio is still too high considering their student loans.

Julia Eaton of Axia Home Loans is our in-house mortgage broker. She pointed out that we do have some great news – President Obama and the White House have announced that HUD and FHA will be lowering the annual mortgage insurance premium for borrowers effective February 1st. Right now the monthly premium when putting 3.5% down is 1.35%; this is being lowered to .85%.

What does this mean?

If purchasing a home for $350K with 3.5% down; the current monthly mortgage insurance premium is $376.99 per month. Effective February 1st this will now be $237.36 per month; a savings of $139.63 – this is significant.

When putting down 5% or more, the new mortgage insurance premium is now .80% from 1.30%.

FHA is now much more appealing for someone with a lower credit score as well as a small down payment.

Even with this, considering the tight lending standards across the board, I don’t think we need to worry about irresponsible lending.

What do you think?