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FHA MIP Change starting April 1, 2013 and JUNE 3, 2013

By Bahman Davani, CM at Texas Five Star Realty, Plano, TX (214) 457-7055

Real Estate Broker/Owner with Texas Five Star Realty, Plano Texas

February 08, 2013 06:59 AM

FHA MIp Rate and Duration Changes starting April 1, 2013 and June 3, 2013, respectively

The following changes to FHA Mortgage Insurance Premiums (MIP) will take effect with the respective case number assignment dates, April 1st, 2013 and June 3rd, 2013. These changes are big and may affect borrowers affordability and/or ability to qualify for FHA financing.

NOTE: These changes only affect FHA Loans with case numbers assigned after April 1st, 2013 and has nothing to do with the Sales closing date. Therefore, If you have a FHA case number assigned on March 31st, but the sale is closed sometimes in May or after, these changes will not affect your purchase.

These MIP Rate and Duration changes include:

FHA MIp Policy Change starting April 1, 2013
Effective with FHA case numbers assigned on or after April 1, 2013 FHA Mortgage Insurance Premiums will increase.

The increases in the annual MIP specified in this article apply to all mortgages insured under FHA’s Single Family Mortgage Insurance Programs except:

Streamline refinance transactions of existing FHA loans that were endorsed on or before May 31, 2009 (see ML 2012-04)

For all SF Forward Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be .55% (55 bps), regardless of the base loan amount and the UFMIP will be stayed at decreased value (1 bps) 0.01% of the base loan amount.

Title I

(Home Improvement Loans):
HUD "Title I" insures private lenders against loss on property improvement loans they make. HUD does not lend money for property improvements. Title I can be used in connection with a 203k Rehabilitation Mortgage. For additional information on HUD "Title I", please visit HUD website at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/title/ti_abou

Home Equity Conversion Mortgages (HECM or Reverse Mortgage)

Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender.

Section 247 (Hawaiian Homelands)

FHA's mortgage insurance provides opportunities to low- and moderate-income Native Hawaiians to purchase a home on Hawaiian home lands. FHA insures loans made to native Hawaiians to purchase one- to four-family dwellings located on Hawaiian home lands.

Section 248 (Indian Reservations)
A family who purchases a home under this program can apply for financing through a FHA approved lending institution such as a bank, savings and loan, or a mortgage company. To quality, the borrower must meet standard FHA credit qualifications. An eligible borrower can receive approximately 97% financing . An eligible party can produce a gift for the down payment. Closing cost can be financed; covered by a gift, grant, or secondary financing; or paid by the seller without reduction in value.

FHA case numbers assigned on or after April 1, 2013 mean BIG changes for borrowers and may affect their ability to qualify for FHA financing. These changes include:

		Current MIP Rate and Durations Up to	New Rules effective with Case Numbers
Item Changing	Current Rules	3/31/2013	6/2/2013	starting 4/1/2013	starting 6/3/2013
	Base Loan Amount < $625,500	MIP Rate	MIP Duration	MIP Rate Changes	MIP Duration Changes
> 15yr Term Annual MIP (paid Monthly with Mortgage Payment) MIP Duration	down payment < 5.00% 5.00% < down payment < 10.00% 10.00% < down payment < 21.09% with down payment >22.00%	1.25% 1.20% 1.20% 1.20%	Cancelled at 78% LTV & 5 Years Cancelled at 78% LTV & 5 Years Cancelled at 78% LTV & 5 Years 5 Years	1.35% 1.30% 1.30% 1.30%	Loan Term Loan Term 11 Years 11 Years

< 15yr Term Annual MIP (paid Monthly with Mortgage Payment) MIP Duration	down payment < 10.00% 10.00% < down payment < 21.09% down payment > 22.00%	0.60% 0.35% 0.00%	Cancelled at 78% LTV Cancelled at 78% LTV No Annual MIP	0.70% 0.45% 0.45%	Loan Term 11 Years 11 Years

FHA MIp Policy Change starting June 3, 2013

Effective with FHA case numbers assigned on or after June 3, 2013 FHA Mortgage Insurance Duration will change.

The changes to the duration of the annual MIP as specified in this article are effective for all Single Family FHA programs for which FHA charges an annual MIP except

Title I

(Home Improvement Loans):
HUD "Title I" insures private lenders against loss on property improvement loans they make. HUD does not lend money for property improvements. Title I can be used in connection with a 203k Rehabilitation Mortgage.

Home Equity Conversion Mortgages (HECM or Reverse Mortgage)

Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the
U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender. Impact Analysis (Example):
To better understand the impact of these changes on a borrower, let's use an example with following assumptions.

Let's assume a borrower is purchasing a house at $200,000 with 3.5% down (LTV=97.5%), and getting a 30-year fixed FHA loan at 4%.

Today, prior to April 1st, 2013, The Monthly MIP Rate and Duration are as follow:
Loan Amount = $200,000 (1-.035) = $200,000 * 0.965= $193,000
Monthly MIP = (Loan Amount * MIP Rate for 3.5% down )/12 = $200,000 * 96.5% *1.25% /12 = $201.04
The borrower is paying this Monthly MIP until the loan balance <= 78% of the original Loan Amount = .78* $193,000 = $150,540
Using a Mortgage Amortization Table or Calculator, we find out this happens after paying Monthly Mortgage Payment (Principal + Interest) for 137 Months.
So, Total MIP the borrower pays for the entire MIP duration would be $201.04 * 124 = $24,928.96

After June 3rd, 2013, The new Monthly MIP Rate and Duration would be as follow:
Loan Amount = $200,000 (1-.035) = $200,000 * 0.965= $193,000, with Monthly Principal + Interest =$921.41
Monthly MIP = (Loan Amount * MIP Rate for 3.5% down )/12 = $200,000 * 96.5% *1.35% /12 = $217.125

Increase Monthly MIP
In the above example, This is an increase of $16.09 = $217.125 - $201.04 MIP per month.

Decrease Affordability
In the above example, additional Monthly MIP of $16.09 for 30 years translates into getting a loan of $189,630 (with 4% Interest Rate) to have a monthly payment and interest of $905.32 =$921.41- $16.09. If the borrower were eligible or could afford to purchaser a house at $200,000 (Loan $ 193,300), Now with this additional MIP he/she is eligible to get a loan for $189,630 (purchase a house with $196,507 =$189,630/.965) to have the same Monthly payment of Principal + Interest + MIP. This is decrease affordability of 1.75%

Increase Total Monthly MIP
The borrower will be paying this Monthly MIP for the entire loan term which is 30 years or 360 Monthly Payments -->
So, Total MIP the borrower pays for the entire MIP duration would be $217.125 * 360 = $78,165.00
This is an increase of $53,236.04 = $78,165.00 -$24,928.96 total MIP for the entire loan term.

A summary of these results are shown in Figure 1.

Assumption: purchasing a house at $200,000 with 3.5% down (LTV=97.5%), and getting a 30-year fixed FHA loan at 4%.Interest Rate.
Legend:

Series 1: with FHA case numbers assigned on or before April 1, 2013, Total Monthly MIP would be paid 124 Months * $201.04/Month= $24,928

Series 2: with FHA case numbers assigned on or after April 1, 2013, AND before June 3, 2013:
Total Additional (compare to Series 1) MIP paid is $ 1,995.16 = $16.09 * 124. This brings Total Monthly MIP to be paid = $26,923
Series 3: with FHA case numbers assigned on or after June 3, 2013:
Total Additional (compare to Series 2) MIP paid is $51,242= (360-124)*217.13. This brings Total Monthly MIP to be paid = $78,165

For more information about these changes and changes related to Base Loan Amount > $625,500, please visit HUD website at Mortgagee Letter 2013-04.

To calculate the Current MIP and UFMIP Rates Prior to April 2013, For Different Cases please visit my site at http://www.TexasFiveStarRealty.com/FHA_MIP_UFMIP_Calculator.asp

Click 2013 FHA MIP Impact Analysis Calculator to See the Affect of New MIP Rates (April 1st, 2013) and MIP Duration (June 3, 2013) For Different Cases