FHA is making changes to the structure and pricing of their Mortgage Insurance Premiums. The FHA Reform Bill was signed by President Obama on August 12, 2010 and gave HUD permission to increase annual mortgage insurance premiums. These changes will go into effect October 4, 2010.
These changes will only effect new FHA borrowers. Borrowers in existing FHA loan products do not have to worry about these changes, unless they are looking to refinance after October 4th.
What does this all mean to a potential FHA borrower? Basically, the price of monthly mortgage insurance is going up; thusly, the borrower's total monthly mortgage payment is going to increase. A homebuyer using FHA financing is going to find that their overall borrowing power will be reduced.
With the new guidelines, on a typical FHA purchase loan with the required 3.5% down, the annual mortgage insurance premium will be .90% of the base loan amount(current rate is .55% of total loan amount). If a borrower puts 5% or more down, the annual premium will be reduced to .85%.
Also, if a borrower arranges a 15 year term, and has 10% or less down, the annual premium will be .25%.
FHA will be reducing the required Upfront Mortgage Insurance Premium (UFMIP) from the current 2.25% to 1%.
Here is a sample loan scenario:
$100,000 purchase price, 30 year fixed FHA financing with 3.5% down payment
The borrower would need a $3,500 down payment. The borrower will have to pay a 1% UFMIP of $965, which will be added to the loan amount and amortized over 30 years. The total loan amount would be $97,465.
The annual mortgage insurance premium is .90% of $96,500 which is $72.37 per month.
Using the current calculation of annual mortgage insurance premium (at the .55% rate) the monthly payment in this scenario would have been $45.22. the increase to the borrower in this example is $27.14 per month.
The larger the purchase price and loan amount, the greater the impact these changes will have on a borrower's monthly payment.
Even with the upcoming changes, FHA financing is still a great option for a low down payment purchase. Please contact me, and I will explain the full impact of these changes in detail: (513) 520-6044 or bahale1@gmail.com
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