How to take advantage of Toady's great rates when you have less than 20% equity in your home without paying mortgage insurance. Part One

Many people feel that if they have less then 20% equity in their home they cannot refinance without paying mortgage insurance thus defeating any savings from refinancing.  They are often told this by loan consultants or brokers. This is not always true. Let me demonstrate

FHA 15 year fixed:
If you owe $90,000 on a $100,000 home and you only have one loan, your loan to value is 90%.  Under FHA guidelines if you are refinancing or purchasing a home and you do a 15year fixed as long as your loan to value is below 90% you DO NOT PAY MONTHLY MORTGAGE INSURANCE.  You would pay the 1 percent upfront fee for FHA that is financed into the loan but no mortgage insurance.  With rates as low as 3.875% with no points this can be a life saver for borrowers who want to get a low rate and pay their loan down quicker but lack sufficient equity to go conventional without mortgage insurance.  This is also great for borrowers with lackluster credit.  FHA does not penalize you with a higher rate is your credit is less than perfect.   

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