Changes to FHA Mortgage Insurance Premiums

By
Mortgage and Lending with Bay Equity LLC. Georgia Residential Mortgage Licensee. GA-MLO 40074. NMLS ID 200401. 200401

 

By now most have heard the news about the U.S. Department of Housing and Urban Development (HUD) making some significant changes this week that affect FHA loans.  HUD released a Mortgagee Letter earlier this month detailing changes to FHA's Mortgage Insurance Premiums.  According to the letter, these changes will apply to all FHA loans with case numbers assigned on or after October 4, 2010.

HUD has decided to raise FHA's annual mortgage insurance premium (collected on a monthly basis) and correspondingly lower FHA's upfront mortgage insurance premium (collected on the "front" end of the loan), except for Home Equity Conversion Mortgages (HECM).

The annual insurance premium, currently at .50% (to .55%), will be raised to .85% (to .90%).  The five percent variables are based on loan-to-value ratios above or below 95%.  The upfront insurance premium however, will go from 2.25% down to 1%.  For those of you that prefer the language of Basis Points (BPS) to percentages, 1% is equal to 100 BPS.

Enough of the mortgage lingo.  So what does all of this mean to the consumer?  Well, it could be a lot actually.

PRE-October 4, 2010

Purchase Price:  $200,000

Down Payment:  $7,000 (3.5%)

Interest Rate:  4.5%

Upfront Mortgage Insurance Premium: $4,343

Principal, interest and mortgage insurance payment:  $1,088.37

POST-October 4, 2010

Purchase Price:  $200,000

Down Payment:  $7,000 (3.5)

Interest Rate:  4.5%

Upfront Mortgage Insurance Premium: $1,930

Loan Amount: $194,930

Principal, interest and mortgage insurance payment:  $1,132.43

As you can see from the example, the payment would end up being more than $44 per month higher. To put that in perspective, if your buyer is tight on his or her debt ratios, that "pre-approval" may no longer be valid.  Depending on the price, their approved loan amount could be lowered by $10,000!

Fence sitting buyers: time to jump off that fence!  Especially if the loan is an FHA loan.  Even if it's not an FHA loan, this industry is continuing to  change on a daily basis.  You never know what tomorrow may bring.  What we do know is that NOW is a great time to take advantage of 40-year low interest rates as well as phenomenal deals on homes.

Should you have any questions about these changes or how they will affect you, don't hesitate to contact me.

 

Comments (1)

Frank Castaldini
Compass - San Francisco, CA
Realtor - Homes for Sale in San Francisco

I have mixed emotions about FHA loans.  3.5% is a decent amount but it's also close to no money down which, I believe was the major cause of the tremendous mess that we've been working through over the last few years.  At least borrowers need to have skin in the game.  Certainly, FHA has strict qualifications and it would seem to help buyers who really can afford their loans.

The changes you're mentioning would seem to make it easier to get a loan...as in less money needed to come to the table.  I say it's the wrong direction.  Skin the game, more skin in the game.

Sep 04, 2010 03:02 AM