My Take On My Home

IHCDA (Indiana Housing and Community Development Authority) introduced a new mortgage option called ‘My Home’ last June.  While I am typically a big fan of IHCDA’s products, I must admit that I’ve been lukewarm on this one.  Frankly, I wasn’t seeing the benefit.

Today I decided to put some math behind my first impression to see if this program really is beneficial to the homebuyer, and I thought I’d share what I found with you.  So...here you go!

The Advantages of My Home

My Home is a conventional loan option offered to both first and repeat home buyers that lets them buy with a reduced down payment (3%) at an attractive, at-market interest rate.  Typically, if a conventional mortgage has a down payment lower than 5%, the interest rate is higher in order to make up for the additional risk, so this at-market interest rate is a strong advantage.  Also, the My Home buyer gets a reduced private mortgage insurance (PMI) rate making the monthly PMI cost less than it would be with other 3% down options. 

The 3% down payment can come as a gift from a family member, which is also rare for conventional loans.  With the ability to get a conventional mortgage at a good interest rate with 3% down, reasonable PMI and an option to use gift funds for the purchase, many buyers would be attracted to the My Home program.

The Disadvantages of My Home

The biggest drawback to this program are the fees.  Like IHCDA’s Next Home product, the My Home loan typically has 2 points charged as a closing cost.  A point is a cost equal to 1% of the loan amount.  The seller can contribute towards these points but a conventional mortgage will only allow a seller to give a total  of 3% of the sales price towards the buyer’s costs so the seller’s contributions typically will not cover the 2 points, plus the additional closing costs/prepaid items related to the purchase.  This means the buyers will need to cover some of those costs themselves, along with their 3% down payment.

Additionally, the PMI is still slightly higher than it would be on a 5% down mortgage.  Yes, it is lower than many other 3% down loans out there, but putting 5% down puts a buyer into a lower PMI bracket.  Because of this, the cost of PMI for a regular 5% down mortgage is typically lower than the reduced 3% down PMI.

So Which Option Is Best?

Seeing that a buyer needs 3% down for My Home and then has to pay 2 points on top of that, my initial feeling was that they might as well just do a regular 5% down mortgage and get the lower PMI that goes with it.  They’re paying 5% either way, right?  And the PMI is cheaper?  So going with a regular 5% down loan is best, isn’t it?

For some buyers, it definitely is.  For some buyers, though, it isn’t.  Why is that, you ask?  It’s because of the credit score impact.

Let me explain.  The My Home program has just one interest rate for all buyers.  Today it is 4.5% for the 30-year fixed loan (this is the current rate and subject to change at any time).  A regular conventional loan’s interest rates will move slightly based on your credit score, though.  If you were buying a $125,000 home right now with 5% down and had a 720 or higher credit score, your interest rate would also be 4.5%.  If your credit score was 680-719 though, it would slide up to 4.625%. 

The PMI is also impacted by your credit score.  If you were buying a home with a 760 credit score right now with 3% down, the PMI would cost 0.57% per year.  If you were buying with 5% down, it would cost you 0.54% per year, which supports my original idea that 5% down is cheaper because the PMI costs less.

If your credit score was only 680 though, the benefit goes the opposite way.  A 5% down option would have PMI at 0.89% per year while the 3% down option would actually be less at 0.80% per year.

So What Does This Tell Us?

Based on this math, My Home very well might be a good option for some conventional buyers.  Buyers who want to use gift funds for their down payment and closing costs, or buyers who have a credit score under 720, should consider this. 

But how do YOU know if it’s right for YOU?  Simple.  You talk to me.  Together, we look at your specific situation and the exact numbers for you.  Based on that, you make the decision for which type of mortgage suits you best.

If you are considering a home purchase in Indiana or Michigan and have questions about the IHCDA My Home program or any other mortgage program, just give me a call!  I’d be happy to help you take your next step towards your new home.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.