Economical UpdatesReal Estate News May 7, 2016

The T & I of PITI

Dealing with apples and oranges might be easier but CoreLogic still recently attempted to compare property tax rates across the U.S. The variations might be more numerous than states with multiple taxing authorities, different assessment formulas and exemptions for elderly, disabled, veterans, and so forth, but the company has come up with estimates for median rates at the national and state levels.

Nationally the median property tax is 1.31% or an average of $2,620 on a $200,000 home. Illinois has highest median rate at 2.67% and South Dakota the lowest; 0.38%. Taxes in general are highest in the Northeast and in Texas and lowest in the Rocky Mountain States and Hawaii. Sixteen states have median taxes of less than 1% and seven are over 2%. California ranks in 30th place with median taxes of 1.12%

Another factor that figures into a lot of homeowners’ monthly mortgage PITI (principle, interest, taxes and insurance) is evolving. Homebuyers with less than a 20% down payment are required to carry private mortgage insurance (PMI) to get a Fannie Mae or Freddie Mac (GSE) loan and FHA charges both an upfront and an annual premium for its low down payment guarantee. PMI protects lenders if their collateral is worth less than the balance of the loan if a borrower defaults while the FHA premium is held in its Mortgage Insurance Fund (MIF).

After the housing crisis nearly bankrupted MIF, FHA raised its premiums several times, driving many borrowers toward GSE loans and PMI. Then early last year FHA lowered its premiums by O.5% and reversed the trend.

Last month PMI companies revamped their premium structure, lowering some premiums below those charged by FHA. There is a catch however. While FHA charges everyone the same–an annual premium of 0.85% of the base mortgage ($171 per month on a $200,000 loan), PMI is priced by credit score buckets.

Borrowers with credit scores in the highest bucket, over 760, will see premiums drop by 48% to a .55 rate, well below the FHA level. Those with poor scores, 620-639 will see premiums of new loans of 2.25, a 52% increase and more than double the FHA rate.

At least we know the PMI companies have a firm grip on the concept of adverse selection.

Interest rates reversed course again this week; Freddie Mac said they were again hovering just above the year’s lows. The only new hard housing numbers were construction expenditures, up a middling 0.3% to $1.14 trillion, $842 billion of it privately funded. Residential construction spending did a bit better, up 1.6%. However, nearly all of the increase went to multi-family construction. Another ho-hum week for housing.