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Bill H.R. 5981 passes - FHA Mortgages to increase it's annual mortgage insurance premium

Recent changes to FHA.  This was well written and provides some great examples. Figured I would share it with you.

 

fha loans update - fha home loans - fha mortgages

FHA first proposed the monthly mortgage insurance changes in the beginning of 2010. Bill H.R. 5981 was first passed by the House in the spring and was just passed by the Senate the other day.  What does this bill do for FHA mortgages? They have projected that it will yield approximately $300 million per month to the FHA insurance fund.

So what are the new FHA changes? - For terms greater than 15 years -

LTV's <= 95% will increase the monthly fee by 85 bps

LTV's >   95% will increase the monthly fee by 90 bps

And lastly, it will reduce the Upfront Mortgage Insurance Premium, UFMIP, from 225 basis points to 100 basis points.

The plan is to go into effect by September 7th, 2010 on all FHA case numbers. FHA gives it's reasons to this new plan. FHA letter from David H. Stevens

 

 

 

So what do the actual changes mean to the average borrower that will rely on FHA loans when purchasing a new home or refinancing?

                - The Old Plan -

LTV's <= 95% will increase the monthly fee by 50 bps

LTV's >   95% will increase the monthly fee by 55 bps

 

 

Example of the changes regarding the FHA monthly mortgage insurance known as MMI or annual mortgage insurance premium and the FHA upfront mortgage insurance premium known as UFMIP.

 

FHA chart for new montlhy mortgage insurance and upfront MIP

 

 

 

 

 

 

 

 

 

 

 

As you can see, it would be much cheaper monthly with the old plan, even though you pay $3,317 more upfront, on top of your loan. This can also be a tax write off since it's included in your principal. You break even point on this type of scenario is 47 months, which is roughly 3.9 years. After this break even point, you would have started to spend more money in reality. This is how FHA will increase it's mortgage fund. As you can see, it won't be increased as quickly upfront, but over a longer period of time. So if you held onto this mortgage for 7 years, you would have spent approximately $2,522.

Now, there are several other factors to consider when reviewing this kind of information.  Just for the fact that your original balance on the loan will be $3,317 lower and in 7 years, still be that much lower. And as I mentioned, you would have a little more of a tax advantage on the higher balance though.

All I wanted to do was to present the basics of FHA loans and not get into the extreme details on how one could show either side. What could this do to a potential home buyer?  It could reduce your purchasing power. In this scenario, if you had originally qualified for a $275,000 loan with qualifying ratios of 31/43, what would your new purchase price be.

 

 

- New Purchasing Power after September 6th, 2010 -

With the new FHA monthly mortgage insurance and the FHA upfront mortgage insurance premium changes, your purchasing value would drop approximately $10,000, a purchase price of $265,000. Now, these are just averages, because this will all be based on the actual purchase price. Meaning if values are higher or lower, the total amount could change some. But this should give you a good understanding of what changes lie ahead for FHA mortgages in the near future.

 

 

UPDATE : Travis Newton did a similar post, using a $200,000 purchase price and as you can see, the mortgage payment inceased by $45.29/month.   Notice *** FHA Changes

 

 

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Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

 

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Comment balloon 5 commentsJohn Cannata • August 06 2010 02:14PM

Comments

Such a cool update.  Like the table.

Posted by Loan Survivor Real Estate Financing Expert (Purchases, First Time Buyers, Pre-Approvals, Refinance) about 8 years ago

John... thanks for reblogging this and for helping me get this out there.... and for the nice intro.  thanks

jeff belonger

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) about 8 years ago

When someone outlines it so nicely, it makes it easy to reblog.

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) about 8 years ago

Jeff - Typically, I write more within the Reblog, but I only had a moment. I'll provide something nicer the next time.

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) about 8 years ago

John, this is a great article to reblog but not good news for sellers today who have already reduced their prices, huh?!

Posted by Teral McDowell (Referral Patners LLC) about 8 years ago

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