Changes to FHA Loan Program on the Horizon PDF Print E-mail
Wednesday, 14 March 2012 14:40

Starting this April, buyers looking to take advantage of FHA financing for their home purchase are going to find those loans a tad bit more expensive to originate.  Although the same low 3.5% down payment requirement as before will remain in effect - making home purchases viable for individuals without tons of cash to plunk down at settlement - the upfront mortgage insurance premium (MIP) will be going up from 1.00% of the total loan amount to 1.75%.  This upfront MIP is the amount that HUD charges to guarantee the loan and to fund the FHA program, and can either be added to the total settlement costs of the transaction or financed as part of the loan itself.  So... if you were taking out a loan on a $500,000 home, putting 3.5% down, the amount collected or financed for upfront MIP would be going from $4,825 to $8,443.75.

FHA loans have a monthly mortgage insurance premium in place as part of the mortgage payment as well, which will be increasing slightly also.  Through March 31st, the rate of insurance on loans with an LTV (loan to value) ratio of 95% or less would be equal to 1.10% per year of the loan amount.  For mortgages where the LTV is higher than 95%, the rate would be 1.15% of the loan amount.  Come April, these percentages will move up to 1.20% and 1.25%, respectively.  To continue along with our example above, the monthly mortgage insurance premium for our $500K home would be moving from ~$462 per month ([$482,500 loan * .0115]/12) to ~$503 per month ([$482,500 loan * .0125]/12).

Lesson: mortgage insurance isn't cheap!  Some buyers might wish to consider certain conventional loan products as an alternative to FHA, where an increasing number of lenders are originating loans with as little as 5% down.  Those loans will still have a mortgage insurance cost associated with them, but the option exists to pay these as a lump-sum upfront settlement cost at a considerable long-term savings for the borrower. The loan sizes on these 5% down conventional products are usually capped within regular conforming loan limits though, or $417,000.

FHA loan limits in the DC area will remain at $729,750.

Last Updated on Wednesday, 14 March 2012 15:31

Coldwell Banker Residential Brokerage
4500 Old Dominion Dr, Arlington VA 22207
Phone: (703) 524-2100 Fax: (703) 524-9014