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Kathy Godin's Blog

By Kathy Godin | Mortgage Broker
or Lender in Raleigh, NC

Increase in FHA Mortgage Insurance Good for Housing Market?

Increase in FHA mortgage insurance good for housing market? A loud NO is heard.  Is there a silver lining?  Let’s review changes and the silver lining question.

FHA charges both an upfront fee (normally financed) and annual premiums (paid monthly).  Upfront fee not changing.  FHA revision increases the annual premium and how long it must be paid.  A quick summary:

= Premium increase is $8.33/month on $100,000 mortgage.

= Exception:  Mortgages of 15 years or less with down payments of 22% or more.  Premium on these loans goes from zero to $38/month on $100,000 mortgage.

The bigger change is less visible.  It involves how long you have to pay premiums.

= On mortgages longer than 15 years, premiums could be cancelled when balance of loan was 78% or less with a minimum payment period of 5 years.  New requirements are:

- The 5 year minimum changes to 11 years when down payment was over 10%.

- Premiums are due for the term of the loan when the down payment was 10% or less (the most common FHA mortgage).

= On mortgages of 15 years or less, premiums could be cancelled when balance of loan was 78% or less with no minimum payment period.  When down payment was 22% or more there was no monthly premium.  New requirements are:

- Payment of premiums now minimum of 11 years when down payment greater than 10%.  Even buyers putting down over 22% fall under the 11 year minimum.

- Payment of premiums is for term of the loan when down payment is 10% or less.

The first change (increase in premium) was effective April 1, 2013.  June 3, 2013 is effective date of change on mortgages of 15 years or less with down payments of 22% or more.

There’s still time to beat the second change (how long premiums must be paid).  Effective date is June 3, 2013.  You must have your FHA case number prior to June 3rd to qualify under the old rules.

Is increase in FHA mortgage insurance good for housing market?  Is there a silver lining?  The housing market seems to be getting its sea legs these days.  Anything that might put a damper on that isn’t welcome.  Let’s look at the facts:

= Will $8.33/month per $100,000 prevent many from buying?

= Will change is duration of premiums prevent many from buying?

In my humble opinion the increase in premium won’t have a negative impact.  Neither will the change in duration of premiums since most buyers are either unaware or unconcerned with how long they will have to pay premiums at time of purchase.  Besides, the average buyer doesn’t keep his/her mortgage much longer than 5 years anyway.

OK, no black cloud but where is the silver lining?  FHA is very important, if not critical, to a healthy housing market.  Right now it’s not in good health.  FHA grew beyond its intent and is taking a beating for being a lender of last resort during the housing crisis of past few years.


Thank you FHA.  You gave when we needed you most.  Now we need to look after you.  Long term the changes are good because your good health is vital to the housing market.

Increase in FHA mortgage insurance good for housing market?  My answer is yes.

FINAL NOTE:  It’s time to look at conventional mortgages again.  Those with 5%+ for a down payment may get a pleasant surprise.

I’m known for helping people finance their dream
Call me if you’re from North Carolina
(919) 789-9888
Where people, not computer robots, answer the phone

Kathy Godin, Branch Manager & Award-Winning Loan Officer
Originally published: http://raleighmortgagegals.com

Comments

By Kathy Godin,  Thu Apr 11 2013, 09:41
Seemed like a good day to post it. lol

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