FHA Home Loans - FHA Monthly Mortgage Insurance to increase - OUCH

 

The cost of FHA loans could increase before the end of the year is over with.  Right now, depending on your LTV (loan to value), the FHA monthly mortgage insurance is either .50% or .55% of the base loan amount.  We could see increases any where from .90% to 1.55%. That is a significant increase. Michael LaFido gives more details in this post : FHA mortgage insurance premiums approved to triple in cost

 

 

FHA Monthly Mortgage Insurance Premiums  (with less than 5% down)

Current premium                    -   .55% monthly

Expected increased premium  -  .90% monthly

Maximum increased premium  - 1.55% monthly

 

 

As in the article mentioned above, it can be established that monthly payments on a $200,000 mortgage could increase any where from $59/month to $167/month. Two things happen here.

1. Yes, the borrowers payment increases and even $150 extra a month could impact the borrowers ability to pay

2. But it also would reduce the purchase price by $20,000 or more.

 

 

Below is an excerpt from what Mr. LaFido stated in his post.

 

 

 

 

 

 

 

Here is my problem with this kind of statement, in which HUD has even stated the same thoughts. I call it smoke and mirrors. Here is how I break it down.

First off, he stated that it would reduce closing costs by $2,500.  Even though the Upfront Mortgage Insurance is considered closing costs, it does not have to be paid in cash at settlement. It can be rolled into the loan amount. With that said, the difference alone in payment is only $14 a month if you reduce the loan amount by $2,500.  So even  if they raised the monthly percentage to the next tier, that is a difference of $59/month. So if you reduce the upfront, that is a difference of $45 more a month.  And if you went to the highest tier, that is a large difference of $167 a month, minus the $14, gives you a difference of $153 a month. Just in 16.33 months, you paid off the difference of the $2,500.  So if you stayed in the house for just 3.2 years, you doubled your costs, paying an extra $2,500.  Think about it, FHA says they will give you a break on the upfront. In reality, they are receiving money pretty quickly in a short time, to help the depleted mortgage insurance funds. I really don't have a problem with that, because FHA is a vital part of the housing industry and we need to make every effort to sustain this type of financing.

 

 

Here is an excerpt from what HUD stated in January of 2010 which can be found here : FHA Announces Policy Changes to Address Risk and Strengthen Finances

 

 

 

 

 

 

 

 

 

Notice what they said..... "with less impact to the consumer". Come on, please don't insult my intelligence. $100 to $150 wouldn't have an impact on the average borrower?

 

 

Conclusion : As I mentioned, don't so much have a problem with what needs to be done to help with FHA mortgages, but I do feel that they could reduce the monthly percentages by at least a 1/4 of a percent. As I showed above, just in 3.2 years on a $2000,000 loan, FHA would recapture an additional $2,500 in that time period. And just for the fact that FHA has realized that it's funds have been depleted for a few years, why couldn't they have looked at this seriously a few years ago or even a year ago, and made a slight change instead of what I feel is a drastic change.  Yes, FHA loans are vital to home buying, but at what cost? What are your thoughts?  We need to let the government hear our voices on this subject.

 

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

 

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc