Effective April 1st 2013: FHA will increase it's annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by .10 percent.
Once again FHA has made a move to bolster it's capital reserves in it's Mutual Mortgage Insurance (MMI) Fund. HUD feels their reserves in the long term are getting to low, so they are jacking up the costs for FHA buyers. Here's the deatails:
FHA TAKES ADDITIONAL STEPS TO BOLSTER CAPITAL RESERVES
On January 30th of this year HUD announced a series of changes to strengthen the MMI Fund and improve it's risk management. FHA Commisioner Carol Galante announced a series of changes to be issued that will allow the agency to better manage risk and further strengthen the health of the MMI Fund. Among the changes, FHA will:
- Increase its annual mortgage insurance premium (MIP) for new mortgages for case numbers assigned on or after April 1:
- by 10 bp for all 15-year, and all 30-year less than $625,500 - what this means is on a 150k loan the payment woudl go up $12 per month.
- adds a new 45 bp annual premium for 15-year loans with LTVs less than 78% (previously, these loans had no annual MIP, now on a 150k loan a borrower would pay $56 per month)
- by 5 bp on jumbo mortgages (625,500 or more), the maximum annual authorized MMI premium.
- Require most FHA borrowers to continue paying annual premiums for the life of the loan, effective for case numbers assigned on or after June 3:
- loans with LTVs > 90%, MIP will be for the life of the loan
- loans with LTVs <= 90% MIP will remain in force for 11 years
This will be a big change, as it means most borrowers will never get out of paying the mortgage insurance which currently drops off when the loan reaches a 78% LTV and they have been paying it for 5 years. Although statistically most borrowers are not in a mortgage more than 5- 7 years the belief is that with rates at historic lows this time frame is expected to change. To give you an idea of how big a change it is, now on that 150k loan you would pay $168 per month for mortgage insurance the entire life of the loan!!
FHA will announce a proposed increased down payment requirement for mortgages with original principal balances above $625,500. The minimum down payment for these mortgages will increase from 3.5 to 5 percent.
That 11 year threshold (June 3,2013), with 10% down, means the home has 33% equity based on normally scheduled mortgage payments with no extra principal paid down by the borrower. These new rules give the FHA more padding, but they remove the option and incentive for a borrower to pay down extra to eliminate the mortgage insurance sooner. It used to be, since 2001, that FHA cancelled the required MIP on loans when the outstanding principal balance reached 78% of the original principle balance!
Additionally FHA will require lenders to manually underwrite loans for borrowers who have a decision credit score below 620 AND a total debt-to-income (DTI) ratio greater than 43 percent; effective for case numbers issued on or after April 1. Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded.
The Lowdown: If you are planning on obtaining FHA Financing you should try to get an accepted offer over to your lender prior to April 1st, 2013 to avoid these increases. There is a small window left for borrowers with less than 20% down to capture the current FHA rules!
About The Figg Team-
Darlene Figg, owner of The Figg Team is an award winning agent and a short sale specialist. She has been selling homes in the South Puget Sound area for 25+ years and has been selected in Seattle Magazine as one of the top twenty agents in the Seattle area for customer satisfaction. Darlene and her expert team understand that Selling your Washington home, whether a Short Sale or a Home with Equity, is her number one goal!
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