Blog: 5 Questions to Ask When Shopping for a Mortgage

Buying a home is a major financial commitment. It’s exciting, but can also be confusing and overwhelming. Choosing the best mortgage that fits your needs is an important first step and first-time homebuyers in particular should research the many options and know the right questions to ask. Here are some questions to ask a lender that will help you make an informed mortgage decision:

* How much can I afford? A home affordability calculator can help you get an idea of what you may be able to afford and keep your monthly payments within your budget. In addition to recurring expenses like car payments, student loans, credit cards and disposable income, be sure to consider other monthly expenses related to the new home, like association fees, homeowners’ insurance, utilities and property taxes. Further, some types of mortgages have firm eligibility cutoffs related to the ratio between a buyer’s total debt amounts and their monthly income.

* How much do I need for a down payment? It’s a common misconception that a 20 percent down payment is required to buy a home. Let’s face it, a 20 percent down payment is a lot of money, and often the largest obstacle for homeownership, especially for first-time buyers. You can qualify for a conventional mortgage with as little as 3 percent down. Conventional mortgages originated with a low down payment, which is defined as less than 20 percent, require private mortgage insurance (MI) until approximately 20 percent equity is established through either monthly payments or home price appreciation. When mortgage insurance cancels, your monthly mortgage bill is reduced. It is important to know that not all forms of MI are created equal — private mortgage insurance is temporary and cancelable but the overwhelming majority of mortgages backed by the government’s Federal Housing Administration (FHA) contain insurance that cannot be canceled.

* What is the interest rate and is it fixed? Most first-time homebuyers go with a 30-year fixed-rate mortgage, which locks you into an interest rate with steady, predictable payments. Different lenders may offer different rates, so make sure to contact several lenders to ensure you’re getting the best option available in the market. A rate lock protects you from rising interest rates while the loan is being processed and lasts for a specific amount of time. In addition, make sure you know whether the rate is fixed or “adjustable.” Adjustable rate mortgages, commonly referred to as “ARMs,” result in periodic adjustments in the interest rate based on the lender’s cost of credit, and can be detrimental to homeowners in rising interest rate environments. Finally, ask if you are paying for “points” to reduce the interest rate. It’s an added upfront cost paid at closing, but it results in a lower rate for the life of the loan.

* Does my credit score matter? Yes, generally stronger credit scores (FICO 720 and above) come with better interest rates, but fortunately there are mortgage options for those with imperfect credit scores too. When you apply for a mortgage, your credit record is used to help determine your approval and mortgage terms, but it is not the only thing lenders consider. A lender will also look at your debt-to-income (DTI) ratio, cash reserves and other factors to help gauge your overall creditworthiness.

* Should I get pre-approved for a mortgage? Yes. Pre-approval means you receive a conditional commitment from a lender up to a specific loan amount. In a seller’s market with tight housing supply, being pre-approved demonstrates that you are a serious buyer with access to mortgage financing. To become pre-approved, you’ll provide your lender with information on your income, assets, debts and credit history to analyze your financial profile and determine your creditworthiness and amount you can borrow to purchase a home.

Make sure to know your options and choose the one that works for you. Check out lowdownpaymentfacts.org to learn more.

Statement: Great News For Homebuyers: U.S. Congress Extends Mortgage Insurance Tax Deduction

WASHINGTON U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on the federal budget deal passed by Congress and signed into law by President Trump today, which includes an extension of the tax deduction for mortgage insurance (MI) premiums.

“Mortgage insurance has helped millions of middle income Americans become homeowners and for nearly ten years, the tax deductibility of MI premiums has helped to reduce the cost of homeownership. In a bipartisan manner, our elected lawmakers in Congress demonstrated today their commitment toward helping low down payment first time homebuyers by keeping mortgage insurance tax deductible. This is important, because while many on Capitol Hill appreciate how MI protects the government and taxpayers from credit risk in the housing system, MI also directly benefits everyday workers.”

First available to taxpayers in 2007 and extended multiple times since then on a bipartisan basis, this tax deduction has been a successful tool in ensuring low- and moderate-income homebuyers have access to prudent and affordable low down payment mortgage finance. In 2015 alone, 4.1 million families benefitted from the MI premium tax deduction, for an average deduction of $1,528. The deduction is available to homeowners with MI who have an adjusted gross income under $100,000 and phases-out for adjusted gross incomes up to $110,000. USMI data show that more than half of purchase loans with private MI go to first-time homebuyers and more than 40 percent of borrowers with private MI have incomes below $75,000. The deduction expired at the end of 2016.

Over the past 60 years, private MI has helped more than 25 million families qualify for home financing by bridging the gap between a 20 percent down payment and perfect credit. In the past year alone, MI helped more than 850,000 families purchase or refinance homes.

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U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.

Statement: FHA’s Annual Report to Congress

Report Shows Agency’s Financial Reserves Weakening

WASHINGTON Today, the Federal Housing Administration (FHA) released its “Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund (MMIF) Fiscal Year 2017.” The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“The Federal Housing Administration today released its 2017 annual report to Congress on the financial status of its MMIF. According to the report, the MMIF stands at 2.09 percent, down from 2.35 percent last year and now just slightly above the statutory requirement of 2 percent. The FHA has taken important steps in recent years to improve its financial stability after requiring a $1.7 billion government bailout in 2013 when the agency did not have the necessary capital to cover losses, though more needs to be done. With more than $1.2 trillion in mortgage credit risk, the FHA must enhance its financial strength to continue to serve the borrowers who need it the most.

“The FHA is a critical part of the housing finance system. While there have been calls to reduce FHA insurance premiums, today’s report makes clear that had this happened, the fund would be at 1.76 percent and undercapitalized. The FHA should resist calls for significant policy changes, such as reducing the cost of its insurance or cancelling the collection of insurance premiums while the FHA insurance protection remains in-force on a mortgage. This will help the agency rebuild its financial strength.

“Now is the time for the FHA to refocus on its core mission, scaling back from the oversized role it played during the recession so that it can return to serving low-to-moderate income individuals who need the FHA’s 100-percent government backed loans the most. Today borrowers have low down payment options through the conventional market backed by private mortgage insurance. Private mortgage insurers put their own capital at risk, paying more than $50 billion in claims since the financial crisis, and have all implemented new higher robust capital standards. USMI looks forward to working with Congress and the Administration to establish a coordinated and consistent housing policy so that private capital can shoulder more of the credit risk in the housing markets, while FHA and the private sector act in the marketplace together to ensure borrowers have access to safe, sustainable and affordable mortgage options. Private MI has served as a reliable and affordable credit enhancement tool for more than 25 million American families for 60 years.”

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U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.

Statement: Nomination Hearing of Brian Montgomery for FHA Commissioner

WASHINGTON Lindsey Johnson, President and Executive Director of the U.S. Mortgage Insurers (USMI), today issued the following statement on the U.S. Senate Committee on Banking, Housing, & Urban Affairs’ hearing on the nomination of Brian Montgomery for Federal Housing Administration (FHA) Commissioner:

“Brian Montgomery is a respected expert and seasoned mortgage finance professional who our industry supports to serve once again as FHA Commissioner. While serving in the President George W. Bush administration, Mr. Montgomery led the FHA when the agency expanded as part of its countercyclical role during the financial crisis – a time of unprecedented market stress. As such, Brian Montgomery has the historic experience and expertise to oversee and manage the FHA’s return to its smaller, appropriate, and intended role in the market focusing on those borrowers who need the FHA’s 100% taxpayer-backed loans the most. The conventional mortgage market today is healthy and continues to prudently serve creditworthy homebuyers, including those with low down payments.

“The FHA serves an incredibly important role for many low-to-moderate income borrowers. We are confident that as FHA Commissioner, Brian Montgomery will continue to be a champion for a robust housing finance system that strikes the appropriate balance between the conventional market backed by private capital and government-backed FHA loans. We agree with Mr. Montgomery’s previously expressed views that private capital should play a leading role in guaranteeing low down payment mortgage credit risk to protect U.S. taxpayers and the federal government, and it is encouraging to know that he believes the FHA ‘should never take the place of the private sector first-loss solution provided by private mortgage insurers.’

“While the FHA serves a very important function in the housing finance system, its footprint has expanded dramatically since the financial crisis. Now is the time to focus on ensuring that the FHA is not overexposing taxpayers to undue risk and refocus the agency on its core mission of serving borrowers who need 100% government-backed home loans. We look forward to working closely with Brian Montgomery in seeking ways to establish a more collaborative, coordinated, and consistent housing policy and to help expand private capital’s role in shouldering more risk in front of taxpayers in the housing market. For 60 years private mortgage insurance has played a leading role in promoting affordable and sustainable homeownership and we look forward to building upon our success in the future.”

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U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.

Statement: Confirmation of Deputy HUD Secretary Pam Patenaude

WASHINGTON Lindsey Johnson, President and Executive Director of the U.S. Mortgage Insurers (USMI), today issued the following statement on the confirmation of Pam Patenaude to be Deputy Secretary of the Department of Housing and Urban Development (HUD):

“USMI applauds the Senate for its confirmation of Pam Patenaude to be Deputy Secretary of HUD. As a longtime public servant and expert in the housing finance system, Deputy Secretary Patenaude fully understands the need for a coordinated, consistent, and transparent approach to federal housing policy across government channels.

“Deputy Secretary Patenaude’s extensive background in housing finance will allow her to immediately begin work on the most important issues facing the housing finance system. Importantly, Deputy Secretary Patenaude’s leadership in these efforts will ensure that Americans have greater access to mortgage finance credit, promote a greater role for increased private capital in mortgage finance, and reduce taxpayer risk exposure. USMI and the private mortgage insurance industry look forward to working with Deputy Secretary Patenaude going forward to establish a more equitable and robust housing finance system.”

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U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.