FHA MI CHANGES JUNE 2013 BUYER BEWARE
JUNE 3, 2013 will bring big changes to FHA. Real estate agents and home buyers need to be aware of how the changes in FHA will impact a home purchase. FHA for a long time has been a go to loan program for first time home buyers in particular. Higher debt to income, lower credit scores and higher loan to value loans, plus the fact down payment funds may be a gift or grant all are reasons to look at FHA.
In the past the fact FHA had an up front mortgage insurance premium plus a monthly factor was offset by other factors in comparing it to a conventional mortgage loan. When the up front or monthly mortgage insurance was lower, FHA displayed little disadvantage. The recent increased up front MI requirement, plus the monthly requirement has caused us to take a good look before recommending FHA.
Now as of June 3, 2013 there is even a greater reason to be sure we as loan originators and real estate agents are making borrowers aware of the difference in FHA and other loan programs.
Most of us in the industry are used to explaining private mortgage insurance. As part of that discussion the question about dropping the mortgage insurance comes up. Depending upon the loan program someone starting out with mortgage insurance could drop it at 78% or 80% loan to value, with some minimum time it must stay with the loan. For FHA loans, this changes on June 3, 2013.
FOR LOANS WITH LESS THAN 90% LOAN TO VALUE MORTGAGE INSURANCE CAN BE DROPPED WHEN THE HOME OWNER REACHES 78% LOAN TO VALUE. BUT MUST BE KEPT IN PLACE FOR 11 YEARS MINIMUM.
FOR LOANS WITH GREATER THAN 90% LOAN TO VALUE MORTGAGE INSURANCE IS PERMANENT, REGARDLESS OF LOAN TO VALUE.
To avoid the above changes FHA case numbers must be ordered before June 3, 2013. For those home buyers considering using FHA, it would benefit them to buy prior to this change. On those mortgage loans with minimal down payment, refinance is the only way out of PMI even with 22% equity is attained, BUT we are experiencing the lowest interest rates in history. The liklihood one will want to refinance out of a really low rate in a few years is low.
After June 3, 2013, there will be those loans that FHA will work best for; unless other loan programs make similar changes, I would think FHA would lose market share. When they already are suffering due to a lack of cash, I cannot imagine less business is the answer, but a reasonable person would believe it is what we will have going forward in June.
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