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By Choosing The Right Loan Option, Lender’s Clients Reap Savings

Valeria Affinito
NMLS #790278
Mortgage Broker
Aloha Happy Mortgage

It’s not news that the mortgage industry has changed and is still changing. Here in Hawaii, we have been seeing an increase in home sales and prices since 2010.

As a mortgage lender originating loans in Hawaii and on the Mainland, I do see a more conservative approach from Hawaii buyers when it comes to purchasing a home. Our local buyers generally seek more information and ask family and friends for advice, hence they tend to make smarter decisions.

As of June 3 this year, there will be some changes in FHA loans that we need to be aware of. As of April 1, we have already seen an increase in insurance premiums (10 basis points), which is on top of previous increases over the past two years.

But starting June 3, FHA loans will require that borrowers keep the PMI (Private Mortgage Insurance) as long as they keep their loans, which translates to making larger payments compared to other loan options.

I’ve noted that many borrowers are not aware of the option of obtaining a conventional loan with Lender PMI. What it means in simple terms is that the PMI is charged on the rate, instead of a separate monthly premium, and the savings can be substantial.

Take for example a $650,000 purchase, 10% down, $585,000 loan amount — the savings can add up to $423.04 a month when you select a conventional loan with a slightly higher rate than the FHA loan but with no separate PMI. Your total savings over the life of the loan (30 years) will be $152,294.40!

I have seen a misuse of FHA loans in the past few years. It seems we have forgotten the real reason this loan program was created in the first place: to provide ownership opportunities to low income families lacking down payment and good credit rating.

As an experienced mortgage loan originator, I have seen a high percentage of borrowers with good credit, money for a down payment, and qualifying income take out an FHA loan, when they could have had a conventional loan, the better choice in many cases.

I may be more conservative than some loan officers in the industry, but I think the ultimate goal of owning your own home is to own it free and clear, instead of focusing on lower monthly payments.

When buying a home, it’s important to make an extra effort and use more down payment, consider options other than the 30 year fixed, such as 25, 20, or 15 year fixed. If this is not an option for you, then make a plan to commit to saving money every month in a separate savings account that will gradually grow and be there for you when you need it. You may be surprised by how easily you will be able to change your 30 year loan into a 15 year loan after only 7 or 8 years and save yourself lots of interest.

By staying informed and making the right mortgage loan decisions when you buy, you will not only be managing your finances more responsibly, but also helping the Hawaii real estate market remain strong.

When buying a home, don’t be afraid to make phone calls to many different lending institutions to ask questions and take notes. Most likely the most patient loan officer is the one who really wants to help you.

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