It’s Official: FHA Hike of 75bps Will Come April 1.
The Federal Housing Administration is following through with its pledge to increase upfront and annual insurance premiums on its forward single-family business. The plan is to help rebuild it’s insurance emergency fund which has taken a hit over the last few years during the housing collapse (FHA has paid out nearly $37 billion in defaulted mortgages since 2008).
Unveiled late Monday, the increases are designed to strengthen FHA’s capital position and “have minimal impact on the market and borrowers,” according to FHA acting commissioner Carol Galante. She noted that FHA streamline refinances are exempt from these premium hikes.
Starting April 1, FHA will hike its upfront premium by 75 basis points to 175 bp on all single-family loans, including jumbos.
FHA is also hiking the annual premium on loan balances of up to $625,500 on April 1. On higher balance loans or jumbos, FHA is planning to implement a 35-bp hike in the annual premium on June 1.
The federal mortgage insurance agency currently charges a 115 bp annual premium when the loan-to-value ratio is above 95%.
The Federal Housing Administration plays a critical role in the nation’s housing financing system, providing safe, affordable mortgage financing to consumers in all markets during all economic conditions, the National Association of REALTORS® said in testimony today.
Click to read more: REALTOR® Magazine-Daily News-FHA Plays a Critical Role in Home Financing.
FHA has announced it will make changes to it’s Mortgage Insurance Program. These changes will take effect for all new FHA case numbers issued as of October 4, 2010.
FHA loans require both an upfront mortgage insurance fee and a monthly mortgage insurance fee. The FHA has announced a change to these fees for all new FHA case numbers issued as of October 4th. 2010
The Upfront insurance fee is financed into your loan, added to the base loan amount once your down payment is deducted.
FHA case numbers can be ordered once a contract to purchase has been made and the loan application is signed.
Current FHA Policy, through October 3rd, 2010
Upfront mortgage insurance 2.25%
Monthly mortgage insurance 0.55%
New FHA Policy, as of October 4, 2010
Upfront mortgage insurance 1.0%
Monthly mortgage insurance 0.90%
What effect this will have to a borrower: While the loan amount will be lower due to the reduced Upfront MI cost, the monthly payment will be higher.
Typical loan scenario for a home price of $200,000
Net increase of (3.73%) $40.76 in your monthly payment.
Sales Price: $200,000 less FHA required down payment of $7,000 (3.5%) =
Base loan amount of $193,000
Current MI policy: $193,000 + Upfront mi 2.25% ($4,342) = total loan amount of $197,342
$197,342 @ 4.5% 30 year fixed rate = monthly principal & interest payment of $999.90 + monthly mi at .55% is $91.67 for a total of $1,091.67
New MI policy $193,000 + Upfront mi 1.0% ($1,930) = total loan amount of $194,930
$194,930 @ 4.5% 30 year fixed rate = monthly principal & interest payment of $987.68 + monthly mi at .90% is $144.75 for a total of $1,132.43
FHA loans have been a great way for Maine homeowners to qualify for high loan to value mortgages. With these new changes, look for Private Mortgage Insurance companies to become very aggressive with perhaps much lower monthly mortgage insurance rates.
To learn more about FHA and Private mortgage insurance, contact your Maine Mortgage Specialist today.