HUD announced that big changes are coming to the FHA Mortgage Insurance terms.
The upcoming changes to both the lenght and amount of the annual MIP were announced inMortgagee Letter 2013-04.
There are two deadlines we all need to be aware of affecting the new terms for FHA Mortgage Insurance.
The first batch of changes will apply to all FHA case numbers issued on or after April 1, 2013. After that date, the annual MIP (amount that a borrower pays on a monthly basis) will increase by 5 to 10 basis points depending on the loan to value, term of the loan and base loan amount.
The table below shows both the current and new annual MIP rates. All New Rates are effective for case numbers assigned on or after April 1, 2013
The second batch of changes will be effective for all loans with case number assignments on or after June 3, 2013 and it will affect the duration of the monthly mortgage insurance as well as the addition of monthly mortgage insurance for loan that were previously exempt from it.
Currently, monthly mortgage insurance (Annual MIP) is paid on FHA loans until 60 payments (5 years) have been made and the LTV reached 78%. Under the new guidelines, borrowers will be required to meet the minimum duration of 11 years or the full 30 year term depending on the length of the loan and the down payment amount.
In addition, the June 3, 2013 deadline will also bring changes to the monthly mortgage insurance for 15 year loans with loan to value equal to or less than 78%
The upcoming changes open up the door for conventional loans to gain market share as the Private Mortgage Insurance is not only lower, but the required duration is shorter as well. Anyone able to do 5% down, with decent credit scores and debt to income ratios would be well served to look at conventional financing.