FHA to hike premiums on mortgages

Recently the Federal Housing Administration has changed some of their loaning practices like insuring loans on condos, renovation loans and even jumbo loans. But we knew there would be more, didn’t we?

According a recent article on CNN Money, the Federal Housing Administration, which is the largest insurer of low-down payment mortgages, announced last week that it will raise premiums by 10 basis points, or 0.1 to 1.35% percent, on most of the new mortgages it insures.

The change goes into effect June 3, 2013 and according to Pat Zaby, “The staggering increase will occur on 6/3/2013 when FHA’s policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP if the loan is paid to term.

What this means:

  • A borrower who will qualify for a 30-year, fixed-rate mortgage who puts down 5 percent or more will now pay an annual insurance premium of 1.3 percent of their outstanding balance. Someone who puts down less than 5 percent will pay a premium of 1.35 percent.

For Example: a Purchase Price $175,000
with 3.5% down payment at 4% mortgage rate on 30 year term

Current

After 6/3/13

MIP duration

78% of original loan

Life of mortgage

Cumulative premium

$20,838.24

$42,447.93

  •  The FHA said it also will raise premiums for borrowers with jumbo loans – loans of $625,000 or more – by 5 basis points, and increase the minimum down payment requirement on these loans to 5 percent from 3.5 percent.
  • Additionally, the FHA said it will require most buyers to pay insurance premiums for the life of their loan. A policy that was put in place in 2001 allowed borrowers to cancel premium payments once their debt fell below 78 percent of the principal balance. One exception will be for borrowers who put more than 10 percent down at the time of purchase.
  • Other new policies include a requirement that any mortgage for an applicant with less than a 620 credit score and debt-to-income ratio above 43 percent must be underwritten manually. Lenders who want to issue loans to these applicants must be able to adequately document why they decided to approve the loans.
  • The FHA also decided to put new restrictions on reverse mortgages, no longer permitting retirees to take such large, upfront payments.

These are substantial changes in regards to getting a loan insured through FHA and to make sure you can get through the process of buying your home, you need to work with your local real estate agent. I also have lists of loan officers who will help you every step of the way with your financing.

Call me today at (319) 480-5262 and let’s get started!!