If you haven’t heard, FHA announced on February 14th that it is raising the annual mortgage insurance premiums, also known as the FHA monthly mortgage insurance. These changes are mentioned in Mortgagee Letter 11-10
and become effective on or after April 18th, 2011. The new change is 25 bps more.
I have already heard that some of you think this will hurt the housing market and our economic recovery. Why the changes? HUD wants to strengthen the FHA’s Mutual Mortgage Insurance Fund, known as the MMIF. Think about it this way. If FHA doesn’t become pro-active now and FHA disappears in the future, then where do you think we would be regarding financing options.
Keep in mind that Fannie Mae has a pricing change that goes into effect on April 1st, 2011. Pricing Hikes for Conventional Loans in April 2011 That many lenders and investors have already made this change to their pricing. Also, there is no change to the Upfront Mortgage Insurance Premium of 1 percent for FHA loans, just the monthly premiums have been changed.
Old verse New Monthly Mortgage Insurance Changes
This chart is from Mortgagee Letter 11-10 – Annual Mortgage Insurance Premium Changes -
As you can see by the red arrow, indicating that this goes into effect on April 18th, not April 4th. So what does this all mean to those refinancing or buying new homes with a FHA mortgage?
This is based on a $250,000 sales price and the end result is that it would cost the buyer $50.26 more in their total monthly mortgage payment. You can also look at it from the flip side when qualifying buyers. This could lower the new buyers purchasing power by about $9,000. Meaning, instead of the $250,000 purchase price in the example, they can now afford a $241,000 home.
This new change is for your primary 1 to 4 unit properties. This change does not affect Title 1 loans, the HECM loan (reverse mortgages – which I am writing about tomorrow), the HOPE loan, and a few other types of FHA loans. This can also be found in the new FHA mortgagee letter 11-10.
There are also new changes to how one would have to request a FHA case number, cancellations of FHA case numbers, and a few other issues. These changes can also be found in the new FHA mortgagee letter 11-10.
Here is a quick breakdown of different purchase prices just to give you an idea how much more your mortgage payment will increase because of the new FHA monthly mortgage insurance change. In simple math, your mortgage payment will go up $10 per month for every $50,000.
