Friday, March 22, 2013

FHA Loans to Carry a Higher Price Tag

The FHA insured Single Family loan program is getting a face lift once again! Three big changes with two important dates to remember:

The first phase is in effect for case numbers assigned on or after April 1, 2013 for purchase and refinance transactions. Streamlines are also included in the increase unless the loan being refinanced was endorsed on or before May 31, 2009. The annual Mortgage Insurance Premium (MIP) will rise by either 5 or 10 basis points depending on the loan-to-value (LTV)... in turn inflating the monthly mortgage payment. This somewhat minimal increase is not unusual from the hikes we've seen over the last few years as HUD has tried to back fill its insurance fund. 

Case numbers assigned on or after April 1st, 2013:
(1 bp is equal to one hundredth of a percentage point)

The second MI change is to the duration of the premium and goes into effect for case numbers assigned on or after June 3rd, 2013. A dramatic makeover that will keep the MI in place for the life of the loan when less than 10% is put down. Currently the premium is set to automatically cancel once the LTV reaches 78% after a minimum of 5 years. 

Case numbers assigned on or after June 3rd, 2013:

By removing the cancellation factor HUD would stand to collect a tidy sum. On an average sized loan of $250,000 and a minimum 3.5% down, the cost over 30 years adds up to $33,835. The cost analysis is from a marketing piece done earlier in February, although the rate and/or fees may vary the principal idea remains the same. The "Forever MI" will apply to purchase loans and refinances, streamlines included, over a 90% loan-to-value.  HUD is also removing the annual MIP exemption for loans with terms of 15 years or less and/or those with a loan-to-value of 78 percent or less at origination.

Case numbers assigned on or after June 3rd, 2013:

There are a few exceptions to each phase as they roll out...

April 1st changes to the MIP Increase excludes:
  • Streamline refinance transactions of existing FHA loans that were endorsed on or before May 31, 2009 (see ML 2012-04)
  • Title I
  • Home Equity Conversion Mortgages (HECM)
  • Section 247 (Hawaiian Homelands)
  • Section 248 (Indian Reservations)
June 3rd changes to the MIP duration change excludes:
  • Title I
  • Home Equity Conversion Mortgages (HECM)
FHA will continue to remain a viable choice for credit challenged home buyers looking for a low-down loan program. However, I would advise better planning if you could qualify for an alternative loan program...an ounce of prevention is worth a pound of cure. To apply for this or any other loan program contact me today.

Additional information: