Wow! This is surprising and definitely a telling sign of the current market. In some pretty large, and important, news for potential home buyers, Bank of America has decided to offer mortgage loans with as little as 3% down. Now, as I have discussed in a previous post, low down payment mortgages are nothing new as you remember the FHA loan only requires 3.5% down. The surprising news comes in when it was revealed that Bank of America will not require the usual monthly insurance premium with this loan! Just so you have a better understanding, let’s talk about this insurance premium real quick.
Your typical conventional loan requires a 20% down payment. As we discussed, the FHA loan requires only 3.5% down, but with this low down payment comes a monthly insurance premium on top of your mortgage payment. This premium is required as a safety net for the bank basically in case you default on your loan. With such a low down payment, it is a higher risk for the bank if the home goes underwater with a shift in the market or if the borrower bails on the payments all together. This FHA insurance premium is currently at .85% annually. What this comes out to is an insurance premium of about $2,050/year or $170/month on a $250,000 home, on top of your monthly mortgage payment. This illustrates how significant the Bank of America loan is without requiring this mortgage premium.
Now the important question to consider here is, is this good news for the market and potential buyers? Or is this a sign of banks repeating the same mistakes as the previous housing bubble and allowing people to get into loans they may not actually be able to afford. With companies like Quicken heavily promoting their “Rocket Loans” it makes me a little nervous to think we may be seeing the same mistakes being repeated. I would love to know what you think about this topic. Please leave me a comment on here or anywhere on my social media and share your opinions with me.
For more information about this loan check out the article here: