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

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