No PMI removal on FHA loans with increased equity! San Diego Condo and Home Buyers Be Aware

 The FHA loan program is a great option and currently an extremely popular one in the San Diego condo and home purchase market.  Currently requiring only a 3.5% down, this program does limit the amount of up-front costs to the buyer which has always been the largest road block for those purchasing their first home.  However, many buyers purchase without knowing many of the ins and outs of the loan program they are obtaining financing through (thus the melt-down in the market due to all the zealous lending of recent years).  SO, I try to make sure all my San Diego Condo and Home Buyers are as informed as possible and when it comes to FHA this is one detail you should be aware of.  Since the amount of your loan will very likely be more then 80% of the purchase price (which the lender considers to be current market value) you will be required to pay monthly for PMI (Private Mortgage Insurance).  The payment amount is priced determined but typically accounts for about $150 – $250 of  your monthly payment on an entry-level home purchase in San Diego ($300,000 – $400,000), increasing with higher priced homes.  With a conventional loan, down the road after the purchase when the value increases such that your loan is only 80% of the now increased value on the home, you can apply for and get a removal of that PMI.  HOWEVER, the FHA guidelines DO NOT allow for this.  You will have to pay that PMI (additional $200+++ a month) for a minimum of 5 YEARS and until you have paid your ORIGINAL LOAN AMOUNT down to 78% (additionally, note that this is even lower than the 80% loan-to-value requirement needed to remove  PMI on a conventional loan).  This may end up costing you thousands of dollars.  A very necessary trade off for those with limited upfront funds but still something every FHA home buyer should be aware of.

Tara Steinke

San Diego Residential Real Estate

619-384-6014