FHA Soon to Increase Insurance Premiums
Federal Housing Administration (FHA) loans will soon become more expensive and more restrictive. If you have clients thinking about buying a home soon, they should be aware of the following changes.
The FHA recently announced that it will increase the annual mortgage insurance premium (MIP) by 0.10% for most new FHA mortgages under $625,500. This annual premium increase â€” which is broken down into monthly payments â€” will take effect April 1, 2013.
FHA loans over $625,500 with terms greater than 15 years will increase 0.05%. FHA loans over $625,500 with terms equal to or less than 15 years will increase 0.10%. This premium increase will also take effect April 1, 2013.
The FHA will also require most new FHA borrowers with a loan-to-value (LTV) ratio greater than 90% to continue paying annual premiums for the life of their mortgage loan. For borrowers with an LTV less than or equal to 90%, the mortgage insurance premiums must be paid for 11 years. This change goes into effect June 3, 2013.
This reverses a previous policy implemented in 2001 that cancelled the FHA-required MIP on loans when the outstanding principal balance reached an LTV ratio of 78% of the original principal balance.
The primary reason for these changes is to bolster capital reserves for FHA's Mutual Mortgage Insurance Fund. Congress has mandated that the fund keep 2% in reserves. The current reserve is negative 1.44%.
The FHA also announced a proposal to raise the minimum down payment requirement on loans over $625,500 from 3.5% to 5%.
If your customers are considering buying a home, they might want to act before these changes take effect. If you would like more information about what these various changes and higher fees will mean for your customers, please contact me today.