FHA Mortgage Insurance Changes Coming in July

A new change is coming for FHA in July....Read on......

This new change from FHA comes from a study that they did that showed them that of the home loans generated in 2007, borrowers who earned less income(family median of 48,756.00), had a score of 680 or higher. While borrowers who had a higher income(famiy median of 53,338.00), had scores of 500-559.

The next change will be based on those results. FHA mortgage insurance will now adopt the risk based pricing model.

Currently, FHA charges an upfront mortgage premium of 1.5% and .50% on all loans regardless of fico score.

Below are examples of how the new pricing will impact the 30 year fixed mortgage:

Borrower 1:

Fico of 559 and a LTV of 97% will have to pay  2.25% on the upfront mortgage premium and .55% on the monthy premium.

Borrower 2:

Fico of 590 and LTV of 97% will have to pay 2.00% on the upfront mortgage premium and .55% on the monthly premium

Borrower 3:

Fico of 660 and a LTV of 97% will have to pay 1.50% on the upfront mortgage premium and .55% on the monthly premium.

Borrower 1a:

Fico of 559 and a LTV of 90% will have to pay 1.75% on the upfront mortgage premium and .50% on the monthly premium.

Borrower 2a:

Fico of 590 and a LTV of 90% will have to pay 1.5% on the upfront mortgage insurance premium and .50% on the monthly premium.

Borrower 3a:

Fico of 660 and a LTV of 90% will have to pay 1.25% on the upfront mortgage insurance premium and .50% on the monthly premium

Borrower 4:

Fico of 680 and a LTV of 95% will have to pay 1.25% on the upfront mortgage insurance premium and .50% on the monthly premium.

Cost approach comparison between Borrower 1 and 3

Borrower 1(fico=559):

On a 200,000.00 30 year fixed mortgage at 6.375% the upfront mortgage insurance premium will 4,500.00(added to the loan balance for a total loan amount of 204,500.00).

The monthly payments will be: 1275.81 P&I plus 91.19 MI. Total= 1367.00

Borrower 3(fico 660):

Same 200K mortgage at 5.875%(lower rate due to risk based pricing), the upfront mortgage insurance premium will be 3,000.00 for a total of loan amount of 203,000.00.

The monthly payments will be 1200.82 P&I plus 91.14 MI. Total= 1291.96

Under this new plan Borrower 3 will pay an extra 6,060.00 if they are in the home for 5 years. This is broken up in to two parts: 1- the 1.5K extra in upfront mortgage premium. 2- 4,560.00 due to risk based rate pricing introduced earlier this year resulting in a higher interest rate.

The new FHA plan rewards better credit scores and lower Loan to Values, but still gives a helping hand to those who have become fico score challenged without the high rates and costs associated with sub-prime.

There are many different mortgage scenerios not shown here, including higher fico scores and 15 year loan terms.

Visit CarolinaMortgageShop.com for more information.