Thinking about buying a home? Time to get off the fence. The Department of Housing and Urban Development is strapped for cash these days due to the high record of foreclosures and the result is an increase in Mortgage Insurance MI). On April 18, 2011 the almighty MI increased yet again to 1.15, from .9.

If you think you've seen the end of this increase, then you must think we've seen the end of foreclosures. Remember mortgage insurance is how HUD finances the FHA loan and in order to continue with this program they will continue to adjust MI as needed.

So get off the fence. If you think you want to purchase a home, now is the time, before MI rises yet again.

FHA Changes Mortgage Insurance Premium

Hold on to your seat. Effective October 4, 2010 the Federal Housing Administration will be shaving it's upfront premium down to 1% of the the base loan amount, instead of 2.25%. Sounds good? Not so fast. With the recent popularity of the FHA loan--a government insured loan--there have been some "liquid" challenges that have come into play with the plethora of foreclosures. The goal here is to insure that the government can continue lending by beefing up their reserve account that pays the lender in case of loss. This will come with the new +.9% for the annual premium.

This new Mortage Insurance change will help. In the long run it's better for FHA/HUD and worse for a buyer if they keep their loan for more than three years. Let's lay this out so you can understand it more clearly. If a buyer purchases a house for $200,000 and puts 3.5% down, they will only pay $1,930 upfront, but their monthly MI will be a different story--try $144.75 per month instead of the comfortable $88.50. Using these same numbers watch what happens over time:




As you can see by year four FHA gets the upper hand in the MI game--what would have in the past cost $8,588 now will have a cumulative cost of $8,878 with the new MI schedule. The fact of the matter here is that most homeowners keep their mortgages for more than four years. Today the rates are so low there is no justification to refinance the loan.

This is not the end of the changes. There are still more under consideration on the white board in Washington. Stay tuned.

FHA Changes Upfront MIP from 1.75% to 2.25%

Let's not get it twisted. FHA has only "officially" changed their upfront MIP from 1.75% to 2.25%. Per their latest Mortgagee Letter, this change will be effective on all new case numbers on 2/5/2010. There are others changes in the works but they are on the discussion table. They include a possible decrease in allowable seller contributions from 6% to 3%. HUD is also changing their minimum credit score requirement and tweaking their required down payment. If you have less than a 580, then you will need 10% down. Greater than 580 they will still allow you to put 3.5% down. This change will not affect many of us as the average score needed by most banks (who supply the funds) is 620.

It's fair to say that we all need to hold on to our seats as more changes are on the horizon. Just remember that you must see an official mortagee letter before any changes are official. The mortgagee letter for the Flipping Rule should be out on 2/1/2010. More on that in my next post.

FHA Training Class - Smyrna, GA on 1/23/2010

If you are thinking of buying a home and you would like to learn more about the FHA Loan, I am giving a live training class on 1/23/2010, click here to register.


This course will get you up to speed on any changes as well as update you on FHA features such as:

- Credit Requirements
- Down Payment Options
- Property Conditions
- 203K Rehab Loan
- Common Challenges that borrowers can overcome

Changes are commonplace in this industry. If you are an real estate agent, or a consumer interested in purchasing a house soon, you do not want to miss this class!

Cost: $20

Register Here

Consumer Credit Information

Major HUD/FHA Condo Lending Changes

On October 1, 2009 (though there’s some talk about this being delayed for 30 days), FHA is implementing a new approval process for condominiums to be eligible for FHA financing. Under the new guidelines, the spot approval process will no longer be available, and approvals expire every two years. Click here to see a copy of the HUD Notice.

For years I have bragged on this blog about FHA being an anchor for many of us in the mortgage business. And it’s true, their guidelines rarely change, however, the new market place is forcing HUD to adjust. Even HUD is seeing a rise in foreclosures over the last 12 months and they must protect themselves. The message here, hang on to your seat. There’s more to come. So here’s the gist of the change:

Applicable to condominium developments that are:
· Proposed and Under Construction
· Existing Construction
· Condo Conversions

These projects will no longer be eligible after October 1, 2009:
· Condominium Hotels or "Condotels"
· Timeshares or Segmented Ownership Projects
· Houseboat Projects
· Multi-dwelling Unit Condominiums (More than 1 Dwelling Per Condo Unit)
· All Projects Not Deemed to be Used Primarily as Residential

Zillow® recently posted the following in regards to this new HUD rule as well:

In the past, you only needed to satisfy one of the following two criteria to finance a condo unit using FHA financing.

1.) The Condo Project has a FHA warranty - This requires the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD.

2.) The unit must pass a questionnaire called a “Spot Check” done on an individual basis
HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals which means you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).

If you are looking to buy a condo, think twice. It’s always been a fact that condos are hard to resell. Now, with this change in financing, it will be more difficult. If you find a condo that does not have a FHA warranty and you really want to buy it, know that the new guidelines are already in affect for most lenders.

Georgia Dream Plus - For GA Residents

I know that many potential homeowners are looking for down payment options. If you live in the state of GA and you are familiar with the Georgia Dream Bond program, get ready to add another program under the same Department of Community Affairs to your list of possibilities. It's called Georgia Dream Plus. It has a higher income limit of 71,000 for Atlanta metro area counties. 5,000 for dpa/closing costs. A few more items to know. 660 credit score is required and you must have $1000 in the transaction. You will find more information on this program and other DCA programs by going to www.dcaloans.com.