Bill H.R. 5981 passes - FHA Mortgages to increase it's annual mortgage insurance premium

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

fha loans update - fha home loans - fha mortgages

FHA first proposed the monthly mortgage insurance changes in the beginning of 2010. Bill H.R. 5981 was first passed by the House in the spring and was just passed by the Senate the other day.  What does this bill do for FHA mortgages? They have projected that it will yield approximately $300 million per month to the FHA insurance fund.

So what are the new FHA changes? - For terms greater than 15 years -

LTV's <= 95% will increase the monthly fee to 85 bps

LTV's >   95% will increase the monthly fee to 90 bps

And lastly, it will reduce the Upfront Mortgage Insurance Premium, UFMIP, from 225 basis points to 100 basis points.

The plan is to go into effect by September 7th, 2010 on all FHA case numbers. FHA gives it's reasons to this new plan. FHA letter from David H. Stevens

 

UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -

 

So what do the actual changes mean to the average borrower that will rely on FHA loans when purchasing a new home or refinancing?

                - The Old Plan -

LTV's <= 95% the monthly fee is 50 bps

LTV's >   95% the monthly fee is 55 bps

 

 

Example of the changes regarding the FHA monthly mortgage insurance known as MMI or annual mortgage insurance premium and the FHA upfront mortgage insurance premium known as UFMIP.

UPDATE BELOW in chart - The 2nd column, the upfront mortgage insurance premium, is usually added into the base loan amount. In this scenario, that is what I did. It's not actually a cash savings out of pocket, but just a reduction in the new loan amount.  I guess it wasn't clear, because a few people said that this whole change was going to help those with less money out of pocket. The buyer still needs 3.5% out of pocket, which is the down payment.

FHA chart for new montlhy mortgage insurance and upfront MIP

 

 

 

 

 

 

 

 

 

 

 

As you can see, it would be much cheaper monthly with the old plan, even though you pay $3,317 more upfront, on top of your loan. This can also be a tax write off since it's included in your principal. Your break even point on this type of scenario is 47 months, which is roughly 3.9 years. After this break even point, you would have started to spend more money in reality. This is how FHA will increase it's mortgage fund. As you can see, it won't be increased as quickly upfront, but over a longer period of time. So if you held onto this mortgage for 7 years, you would have spent approximately $2,522 more.

Now, there are several other factors to consider when reviewing this kind of information.  Just for the fact that your original balance on the loan will be $3,317 lower and in 7 years, still be that much lower. And as I mentioned, you would have a little more of a tax advantage on the higher balance though.

All I wanted to do was to present the basics of FHA loans and not get into the extreme details on how one could show either side. What could this do to a potential home buyer?  It could reduce your purchasing power. In this scenario, if you had originally qualified for a $275,000 loan with qualifying ratios of 31/43, what would your new purchase price be.

 

 

- New Purchasing Power after September 6th, 2010 -

With the new FHA monthly mortgage insurance and the FHA upfront mortgage insurance premium changes, your purchasing value would drop approximately $10,000, a purchase price of $265,000. Now, these are just averages, because this will all be based on the actual purchase price. Meaning if values are higher or lower, the total amount could change some. But this should give you a good understanding of what changes lie ahead for FHA mortgages in the near future.

 

 

UPDATE : Travis Newton did a similar post, using a $200,000 purchase price and as you can see, the mortgage payment inceased by $45.29/month.   Notice *** FHA Changes

 

UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -

 

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

 

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- FHA Loans - USDA Loans - VA Loans -

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Experience & Knowledge at its BEST !!!

 

 

Follow me on:

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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!

HUD

 

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

 

Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 35 times:

Re-Blogged By Re-Blogged At
  1. Travis Newton 08/06/2010 04:46 AM
  2. John Cannata 08/06/2010 07:14 AM
  3. Teri Eckholm 08/06/2010 07:27 AM
  4. William Johnson 08/06/2010 07:28 AM
  5. Cyndee Haydon 08/06/2010 07:29 AM
  6. Audrey June-Forshey 08/06/2010 07:30 AM
  7. Jim Lee 08/06/2010 07:33 AM
  8. Kent Simpson 08/06/2010 07:37 AM
  9. Brigita McKelvie, Associate Broker 08/06/2010 07:45 AM
  10. Brigita McKelvie, Associate Broker 08/06/2010 07:48 AM
  11. Brigita McKelvie, Associate Broker 08/06/2010 07:48 AM
  12. Mesa, Arizona Real Estate Mesa Arizona Realtor 08/06/2010 08:15 AM
  13. Jim Hale 08/06/2010 08:39 AM
  14. Connie Harvey 08/06/2010 08:43 AM
  15. Stephanie Curd-Goulette 08/06/2010 08:49 AM
  16. Brandon Snider 08/06/2010 04:27 PM
  17. Rich Conley - MLO 08/06/2010 04:46 PM
  18. Adam R. Cohn 08/06/2010 05:22 PM
  19. The Mode & Durham Team 08/06/2010 05:44 PM
  20. Robin Dampier REALTOR® 08/06/2010 06:26 PM
  21. Susan Goulding 08/06/2010 06:32 PM
  22. Ginny Gorman 08/06/2010 11:53 PM
  23. Ritu Desai 08/07/2010 12:45 AM
  24. Michael Cantwell 08/07/2010 12:52 AM
  25. Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional 08/07/2010 01:28 AM
  26. Erica Ramus 08/07/2010 02:06 AM
  27. Tammy Woodin 08/07/2010 02:20 AM
  28. Sharon Alters 08/07/2010 05:03 AM
  29. Michael Johnson 08/07/2010 08:59 AM
  30. Rebecca Gaujot 08/07/2010 10:14 AM
  31. Joe Pryor 08/07/2010 10:58 AM
  32. Susan Goulding 08/07/2010 12:19 PM
  33. Lori Cofer 08/07/2010 04:12 PM
  34. Melissa Juarez 08/10/2010 12:35 AM
  35. Roland Woodworth 08/10/2010 11:05 AM
Topic:
Lending / Financial
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
Realtors Needing the services of the Lending Powers
The FHA Mortgage Group
Tags:
fha loans
fha mortgages
fha monthly mortgage insurance
bill hr 5981
fha upfront mortgage insurance premium
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Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

WILLIAM... . good to see you and thanks, it was my pleasure.

CHRIS.....  that is a  good question.  When they first talked about this change, I thought they would drop the upfront from 2.25% to 1.75% or 1.5%.. making them recoup money quicker upfront. But the only thing I can think of is that once someone buys a house, that they will be living in it for 7 to 10 years now.  Think about it... how long will it take once you buy a house in today's market for your house to really appreciate in value. And I bring this up because it would be very hard to refinance down the road, even with a FHA streamline.... but then again, why would you want to refinance with a 4.5% rate or even a 5% rate. So if you look at the first paragraph under the chart, the last sentence.. I tell you that you would have spent $2,522 more after year 7... so maybe that is what FHA is hedging?  Keeping in mind that the average home buyer keeps their house for about 6.7 years?  thanks for the question.

FRED.... . my pleasure and thanks for stopping by.

RICH.....  thanks for the compliment and for reblogging this, getting the word out.

MARY ANN.... . sure, 10 k could be a lot in some markets... could mean the difference in one house to the next...  and thanks for the compliment.

MIKE...... . not sure how it will help those that are cash poor... the down payment requirements are the same as before...  but I will try contacting you about this.. unless my brain is not working.  thanks

MARY... .  I am not sure.. I have told several people in my industry, why not go back to the same way as the early to mid 90's.. when it was like 3% upfront... I didn't do the numbers, but maybe because FHA will get more in 7 years?  Who knows.. thanks

VINCE..... .  my pleasure and thanks for stopping by and commenting...

STAN.... .  no, it's not huge, but $70 extra a month, or even $30 extra, could make a difference for some. How many?  That is unknown... thanks

MIKE....  thanks for referring to this post and for that polite compliment. In regards to the picture in the header, yes, it's the same person... me.. I had someone do this for me and used that pic.. it's about 10 yrs younger... lol  Thanks

ADAM.... .  my pleasure and yes it is... I have already e-mailed this to many of my borrowers, making them aware.. thanks

PAMELA..... .  my pleasure and thanks for the compliment and for stopping by.

 

Aug 07, 2010 01:43 AM #44
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Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Thanks Jeff. I re-blogged you and sent it to 2 other agents.

Aug 07, 2010 02:07 AM #45
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Patricia Kennedy
Evers & Company Real Estate, Inc. - Washington, DC
For Your Home in the Capital

Jeff, this community is really lucky to have you to update us on this stuff! 

Aug 07, 2010 02:47 AM #46
Rainmaker
440,077
David Krichmar
www.DaveYourMortgageGuy.com - Core Lending - Sugar Land, TX
DaveYourMortgageGuy.com

Thanks Jeff, as always you are on top of it

Aug 07, 2010 03:02 AM #47
Rainmaker
1,341,062
Bill Burchard
3B Realty: 951-347-3818, CA - Murrieta, CA
Broker, Realtor, Representing Buyers and Sellers

Thanks for the update, Jeff, and for the easy-to-understand comparisons of the old versus new FHA plans.

Aug 07, 2010 03:39 AM #48
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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Jeff: Thanks for taking the time to lay out the different scenarios. I appreciate it. Some in our business may think that this will stall loans further. I'm not so sure. We are living in unprecedented times where everyone is a little nervous meaning they can't make up their minds.  Until the economy starts gaining traction (at this point it looks like that is at least a year away), I expect business to be pretty challenging. Don't get me wrong. There are always opportunities. It's just going to be a rough and bumpy road for a while. Again, thanks for the post!

Aug 07, 2010 04:08 AM #49
Rainmaker
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Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great information Jeff and thanks for pointing out the real costs of these changes to the consumer.

Aug 07, 2010 04:22 AM #50
Rainmaker
1,073,449
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Jeff, consider this post reblogged! It will probably be a few days to a week before I hear about this from my broker but thanks to you, I know today!

Aug 07, 2010 05:06 AM #51
Rainmaker
847,816
Corinne Guest, Managing Broker
Barrington Realty Company - Barrington, IL
The Choice of Professionals

I very rarely get involved in FHA loans and often miss the changes. Thanks for the post and am glad it was featured.

Aug 07, 2010 05:49 AM #52
Rainmaker
466,818
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Jeff,

Thanks for the information. FHA will still be the loan of choice for many of our buyers. If a buyer has not been able to amass a significant down payment, FHA is he best - perhaps, the only - way to go.

Aug 07, 2010 05:57 AM #53
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

KAREN......  thanks God I am not a Dennis Miller then, right? Otherwise you all would need thesauruses...lol  Seriously, thanks for the kind words and for the polite compliment.

ROBIN & SUE..... my pleasure and thanks for reblogging this and for the compliments.

CATHERINE.... .you are the second person to make the statement and it doesn't really lower the cash out of pocket. The upfront mortgage insurance is usually included in the total loan amount.  But thanks for bring this up because I am going to add that into my post above for clarification.  thanks

SUSAN.... . my please and thanks for the compliment...

BILLI.... . my pleasure and I think making copies to pass out is a good idea.. thanks

JESUS.... .  why?  So that FHA can replenish the FHA insurance fund, to keep FHA going.  They talk about it more in the letter from FHA.  And thanks for the compliment.

GITA.... . my pleasure and I hope that your buyers find it useful.

STEVE..... I agree, hence why I love doing graphs or charts. In many cases, this makes it easier... thanks

JAY..... don't get me started on the gov't... but yes, the lower the purchase price, the lower the difference in payment will be. thanks

MICHAEL.... .  not sure how you can actually think that if the break even point is in 7 yrs.  Besides, why would one refinance if they are getting rates under 5%?  The MI will be there for another 4 yrs... unless the value of the property goes up significantly.  thanks

DAVID.....  it's the gov't, they don't need to think.. lol  Besides, I actually do understand this move and don't have a problem with it.  If FHA is not able to stick around, then the housing market crashes for good. In any case, thanks for the polite compliment.

BARBARA JO..... my pleasure and thanks for reblogging this...

 

Aug 07, 2010 08:52 AM #54
Rainmaker
2,192,301
Rebecca Gaujot
Perry Wellington Realty - Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

I would also like to thank you for this easy and concise explanation...

Aug 07, 2010 10:08 AM #55
Rainmaker
1,003,113
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Jeff:  BOTH of us can be thankful you are not Dennis Miller.  He is too young to be an old windbag, so he is simply full of hot air.   You, my friend, are neither.

Speaking of Dennis Miller, it is too bad he is so insecure that he feels he has to try and impress the public with his "forced" vocabulary.  He just sounds silly, although the right wing continues to "lap it up" when he appears on their shows.

Aug 07, 2010 10:17 AM #56
Ambassador
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Jeff thanks for the information.  As stated above your explantion was easily understood.

Aug 07, 2010 01:23 PM #57
Rainmaker
45,810
Lori Cofer
Beasley Realty - Moscow, ID
REALTOR, Moscow Idaho Real Estate

Jeff thanks for explaining this ... I'm definitely reblogging...

 

Lori Cofer

Aug 07, 2010 04:12 PM #58
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

ERICA.... my pleasure... so that should be 3 deals, right?  lol  Seriously, thanks for sending this out and for reblogging it.

PAT... . well thank you very much for those kind words and for your support..

DAVE.... . my pleasure and thanks for stopping by.

BILL.... .  I am glad it was easy to understand.. and thanks

PAUL.... . it could stall loans... we aren't sure..  but if anything, it reduce the purchase price of that borrower. And I see a bumpy road for the next 2 years.  Thanks for your input.

GABE.... . my pleasure and thanks for the polite compliment.

FRANK & SHARON.... glad I could get this to you sooner. When you say broker, do you mean in real estate?  What about your loan officer?  And thanks for reblogging this.

CORRINE.... . if you do them not, you are welcome.  It could come in handy if you come across some buyers soon.. and thanks about the feature.

JOHN.... . I totally agree with you 110%... and I write about the comparisons in regards to FHA & conventional loans about every 3 months.  thanks

REBECCA.... . my pleasure and I am glad it was easy to understand.. thanks

KAREN..... well, I am glad that I am not Dennis Miller either... he killed Monday night football for me for a whole year. How boring... lol thanks for stopping by again.

JENNIFER.... . you are wlecome and I am glad it was easy to understand...

LORI..... my pleasure thanks for reblogging this

 

Aug 08, 2010 01:51 AM #59
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Roland Woodworth
Q Realty - Clarksville, TN
Short Sale and Foreclosure Resource- SFR - Clarksv

Great information Jeff. Thanks for posting the link on fb too.... Your always on the money :)

Aug 10, 2010 11:04 AM #60
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

ROLAND... thanks for the kind words & compliments....

 

UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -

 

Aug 10, 2010 04:34 PM #61
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Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552

Jeff, I guess this is the price we have to pay to keep FHA available and solvent.

Sep 08, 2010 12:59 AM #62
Rainer
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John Cassels
Sterling Savings Bank - Tacoma, WA
NMLS #197076

Working on getting those last minute Case #'s ordered before Monday.

Oct 01, 2010 06:46 AM #63
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