What does that mean? It's the mortgage insurance that is paid upfront and also monthly. This is how FHA loans have the lower mortgage insurance is by collecting part of the mortgage insurance upfront and then they can have a much lower payment than conventional mortgage insurance. This is what HUD is changing.
HUD announced that they will be raising the monthly payments and lowering what the customer pays upfront. The main problem for you and the borrower is that the monthly payment goes up and they may not be able to qualify!
The up front mortgage insurance is going from 2.25% to 1.00%
For example:
Transaction info: $300k purchase, 96.5% financing 30 year fixed at 4.5%
Borrower Info: 5,300 monthly income, Taxes and Insurnace are $500 and other liabilities $500
If the loan was done today the payments would be:
$1,499.85 P&I
$135.67 Mortgage Insurance
$500.00 Taxes and Insurance
$2135.52 Total
After October 4th, 2010 the new payment would be
$1481.52 P&I ( A bit lower because they are taking less upfront for mortgage insurance )
$219.30 Mortgage Insurance!!!
$500.00 Taxes and Insurance
$2,200.82
That's $65.30 more a month, which if your borrower is on the verge of not qualifying, then you may have a problem. Get with your mortgage broker to make sure the loans you have going will still qualify.
Good luck!
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