HUD recently announced that starting October 4th (recently delayed), FHA is reducing the amount to be collected for their Up Front Mortgage Insurance Premium (UFMIP). However, FHA will also increase how much they collect on their Annual Mortgage Insurance Premium (MIP - collected monthly) for California's Inland Empire (Riverside & San Bernardino County) home buyers.
Confused? FHA's insurance is a ‘split' premium type of mortgage insurance designed to protect the lender from loss. FHA collects some up front (UFMIP) and some on a monthly (MIP) basis. Don't confuse this with your fire/hazard type homeowners insurance which is completely different than FHA's mortgage insurance.
So what's the big deal? How does this impact you? Why would you care? To figure this out, we need to compare the proposed changes to the current guidelines. Below is a table to help compare. This is based on a $200,000 loan amount with 3.5% down payment @ 5%. Payments below do not include monthly impounded property taxes or fire/hazard insurance.....not sure what those are? Then call me.
FHA/HUD IS REDUCING BUYING POWER & MAKING HOME OWNERSHIP MORE EXPENSIVE: As you can see, this change will reduce the buying power for homebuyers in Riverside, Corona, Temecula, Murrieta, Sun City, Menifee, Lake Elsinore, Canyon Lake, and others in Riverside and San Bernardino county's Inland Empire. The buying power drops because the monthly payments increase and raises the buyers DTI (debt-to-income) ratio, therefore reducing how large of a loan they can qualify for. This change will require buyers to make more money to qualify for the same home loan if buying after October 4th, 2010. Frank & Brian from famed Think Big Work Small coroborate this and are calling this an actual Homebuyer Tax....watch this video.
WHAT IF INTEREST RATES INCREASE? If you are waiting to buy to see if home prices drop, the odds are that interest rates will increase over time......they can't stay artificially low forever....can they? A 1% increase in the interest rate would add an additional $127 more per month to the scenario above and reduce a persons buying power even further! Can you imagine waiting until 2011 to purchase a home and rates go up just 1%? You would end up paying anywhere from $170 more per month for the exact same loan after october 4th or up to $279 more when HUD/FHA eventually increases the MIP to 1.5%.
So add this to your multiple reasons to buy a home now rather then waiting. The cost of waiting is just too risky if you are considering buying a home soon. If that's not enough reason to buy (or refinance) then read this post and watch this video What is The Biggest Benefit or Reason for Buying Home.
Thank goodness that even with these changes, the cost of owning a home is still often less then renting. If you would like to find out how qualify for a home loan, learn what your other loan and down payment options are (100% financing still available), or just want to find out what you need to do to prepare to purchase a home, call me at (951) 215-6119 or email me at brad(at)HomeLoanArtist.com. I'm here to help. FHA, VA, USDA Mortgage Expert and Home Loan Artist