Pull on the chin straps, because FHA has raised the annual mortgage insurance premiums which is known as the FHA monthly mortgage insurance. These changes are mentioned in Mortgagee Letter 11-10 and become effective on or after April 18th, 2011. The new change is 25 bps.
Now before many of you flip your top per se, keep in mind that Fannie Mae has a pricing change that goes into effect on April 1st, 2011. Pricing Hikes for Conventional Loans in April 2011 And there is talk about conventional loans requiring 10 percent down, not 5 percent down. Will keep you posted on that topic if and when it becomes official. But there seems to be no foreseable changes for FHA loans and the minimum down payment of 3.5 percent.
Why the changes? HUD wants to strengthen the FHA's Mutual Mortgage Insurance Fund, known as the MMIF. They want to see the fund financially sound. Also, there is no change to the Upfront Mortgage Insurance Premium of 1 percent.
Old verse New Monthly Mortgage Insurance Changes
This chart is from Mortgagee Letter 11-10 - Annual Mortgage Insurance Premium Changes -
As you can see by the red arrow, indicating that this goes into effect on April 18th, not April 4th. HUD must have revised the date after they did the charts. So what does this all mean to those refinancing or buying new homes with a FHA mortgage?
This is based on a $250,000 sales price and the end result is that it would cost the buyer $50.26 more in their total mortgage payment. You can also look at it from the flip side when qualifying buyers. This could lower the new buyers purchasing power by about $9,000. Meaning, instead of the $250,000 purchase price in the example, they can now afford a $241,000 home.
This new change is for your primary 1 to 4 unit properties. This change does not affect Title 1 loans, the HECM loan (reverse mortgages - which I am writing about tomorrow), the HOPE loan, and a few other types of FHA loans. This can also be found in the new FHA mortgagee letter 11-10.
There are also new changes to how one would have to request a FHA case number, cancellations of FHA case numbers, and a few other issues. These changes can also be found in the new FHA mortgagee letter 11-10.
Here is a quick breakdown of different purchase prices just to give you an idea on how it will change the monthly payment.
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