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2012-03-03 10:03:23
Mortgage Insurance increase on FHA Loans! Lock NOW

Increase to Mortgage InsuranceThis past week HUD (Dept. of Housing and Urban Development) announced that they would be increasing the Upfront Mortgage Insurance Premium (MIP) for FHA loans effective April 1, 2012, from 1.00% to 1.75% of the loan amount. THIS IS NOT GOOD NEWS!!

The Upfront Mortgage Insurance Premium, or MIP, is financed as part of the loan and is not an additional closing costs that needs to be paid at closing. But it will cause a slight increase to a borrowers overall loan amount and montly payment. 

For example, on a $200,000 FHA loan amount, the current total amount of the loan after MIP would be $202,000. This amount will increase to $203,500 for loans locked after April 1, 2012. Not a deal breaker but it is a significant .75% increase to the loan amount, and will therefore cause a slight bump to monthly payments AND decrease a buyer's is pre-approved qaulification amount.

From what I understand,  this increase can be avoided if buyers get an FHA case number pulled before April 1. To do so, a buyer just needs to identify a property to purchase. It is ideal if the buyer is already under contract to purchase that property, but even if negotiations are still ongoing, or buyer is anticipating putting in an offer, an FHA case number can be pulled for that buyer on that property. 

If you are considering buying a property in the next 6 months and need to use FHA financing, you should do everything you can to be under contract on a home by the end of this month and lock in current FHA financing rates!

In addition, HUD is considering two other changes to its popular FHA program – increasing the annual PMI and reducing the seller contribution amount. Slated for June 1, 2012 (not yet confirmed) the annual MIP will increase, for most borrowers, from 1.15% to 1.25%. This will cause an additional bump to monthly payments and cause a more significant decrease to a buyer's is pre-approved qaulification amount.

The other proposed change is reducing the seller’s contribution amount from the current 6% to the greater of 3% or $6,000. This is not likely to make much of an impact for most buyers.

'Although, FHA has become popular for condo purchases over the past several years, particularly with more flexible qualification guidelines (provided the condo building is FHA approved), the continued increases in the upfront and annual mortgage insurance premiums are rendering FHA loans less desirable.'

The 5% down Conventional loan is becoming a much more attractive and better option for buyers who can afford the aditional 1.5% of down paymet compared to FHA financing due to much lower mortgage insurance rates. In addition, many lenders can assist the buyer in buying out the mortgage insurance on Conventional financing, either by paying a one time fee at closing (that can be paid for by Seller paid concessions), or by a slight increase to the interest rate, which results in a tremendously lower monthly payment compared to FHA financing.

For more questions regarding this matter and other real etate related subjects, feel free to contact myself or one of my preferred lenders.  


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