FHA Changes Rules - Now a slight more expensive option
St Paul, MN: Let's face it, the mortgage industry continues to tighten it's underwriting belt in the wake of the housing industry meltdown. A meltdown partially created by the mortgage industry itself, who seemingly allowed just about anyone from 2001 - 2007 buy or refinance a home.
Virtually all loan programs have had guideline changes. FHA has been slow to make some needed changes, but they have just officially announced a major change that all lenders and realtors should become familiar with.
EFFECTIVE WITH
FHA LOANS REGISTERED ON OR AFTER OCT 4, 2010 Mortgage insurance will be CHANGED
The first step will be to LOWER the up-front MIP to 1.00% across the board. This is a DROP from the current level. Monthly mortgage insurance will INCREASE across the board:
- 30-yr fixed = upfront MIP 1.00%
- = or less that 95% LTV with have monthly MI at .85%
- Greater that 95% will have monthly MI at .90%
CHANGE EFFECTS AFFORDABILITY: Assume a $200,000 home with a 5% interest rate and 3.5% down.
Under the CURRENT regulations, a buyer would have a PI + MI payment of $1,149 per month ($4342.50 up-front MIP and $90.27 monthly mortgage insurance)
Under the NEW regulations, a buyer would have a PI + MI payment of $1,190 per month ($1930 up-front MIP and $143.00 monthly mortgage insurance)
This change would equate into just a $41.00 per month higher payment. Many would argue it is fairly meaningless, but the reality is that it is the equivalent of RAISING the INTEREST RATE by .50%. As everyone knows, the higher that rate climb, the less people who qualify.
WHY CHANGE NOW?
Simple. FHA needs to increase capital reserves in the wake of huge housing losses. This change is needed to keep FHA solvent, and should brings billions of more dollars to the FHA default fund. FHA loans started in 1934, and have never had to dip into the public coffers for money, but has recently fallen below acceptable minimums.
THE BOTTOM LINE:
The changes are here to stay, and will only have a minor negative effect. Keep in mind the positive effect of keeping FHA around as a solvent viable home loan option. Remembers, first time home buyers generally won't know or care about this unless we bring it up. They want to know:
- what's my monthly payment
- what's my out of pocket cash to close
So don't cloud the home buying issue with the details. Keep upbeat and positive - and go sell more homes!
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Joe is a Certified Minnesota Mortgage Specialist (MMS). His team has over 50-years mortgage lending experience in MN and WI. View his web site at www.JoeMetzler.com. Joe's NMLS # is 274132
33 Wentworth Ave E #290, Saint Paul, MN 55118
Ph: (651) 552-3681
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Mortgages Unlimited is a Full Eagle FHA Lender. We lend in MN, WI only
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