FHA Loans Costs Increasing For Buyers; Is This The Beginning of Home Buying Cost Increases?

We all know that we have historic, all-time low interest rates, designed to promote our bottoming home sales in the US. I think we are all realistic in knowing that interest rates, and home prices, especially under $250,000 are likely to rise this year. To see current figures, visit www.HousingFigures.com

From New American Mortgage this morning, Contact author at: Glenn Kavanagh, glenn.kavanagh@newamerican.com

Good morning, all! We received some news today regarding FHA loans from HUD so I thought I’d pass it along to you. In short, the costs for an FHA loan are going up for buyers.

If you are unfamiliar with FHA loans, FHA charges 2 types of mortgage insurance on their loans: An up-front, one time premium and the monthly premium that’s included in the borrower’s payment. As of right now, that upfront premium is 1% of the loan amount and it’s rolled into the loan. The monthly premium is 1.15% of the loan amount amount divided out over 12 months each year.

We’ve been hearing rumors about the monthly insurance premium and the upfront insurance premium changes coming and HUD has made it official.

This change is effective for FHA loans assigned on or after April 1, 2012.

The changes are:

· The UFMIP (Up Front Mortgage Insurance Premium) will increase by .75%

· The annual MIP (Mortgage Insurance Premium) will increase .10% for loans under $625,500.00 and by .35% for loans above that amount.

The following is an excerpt from an email from HUD received today.
FHA Takes Additional Steps To Bolster Capitol Reserves; New premium structure will help protect FHA’s MMI fund:

HUD No.12-037
HUD Public Affairs

February 27, 2012

WASHINGTON – As part of ongoing efforts to encourage the return of private capital in the residential mortgage market and strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, Acting FHA Commissioner Carol Galante today announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent.

These premium changes will impact new loans insured by FHA beginning in April and June of 2012. Details will soon be published in a Mortgagee Letter to FHA-approved lenders. (Please see: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee )

“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Galante. “These modest increases are one of several measures we are taking towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers.”

The Temporary Payroll Tax Cut Continuation Act of 2011 requires FHA to increase the annual MIP it collects by 0.10 percent. This change is effective for case numbers assigned on or after April 1, 2012. FHA is also exercising its statutory authority to add an additional 0.25 percent to mortgages exceeding $625,500. This change is effective for case numbers assigned on or after June 1, 2012.

The UFMIP will be increased from 1 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012.

FHA estimates that the increase to the upfront premium will cost new borrowers an average of approximately $5 more per month. These marginal increases are affordable for nearly all homebuyers who would qualify for a new mortgage loan. Borrowers already in an FHA-insured mortgage, Home Equity Conversion Mortgage (HECM), and special loan programs outlined in FHA’s forthcoming Mortgagee Letter will not be impacted by the pricing changes announced today.

Taken together, these premium changes will enable FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) Fund, contributing more than $1 billion to the Fund, based on current volume projections through Fiscal Year 2013.

Read the entire press release at: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2012/HUDNo.12-037

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