On August 5th, 2010, Congress passed H.R. 5981. This bill gives FHA the authority to change its annual mortgage insurance premium rate. That same day, David Stevens (FHA Commissioner), came out and stated that FHA plans to increase their annual MI rate for all new FHA loans that have a case # effective September 7th, 2010. The current rates are .50% & .55% and they plan to raise these to .85% & .90%. Stevens also confirmed that FHA would hold true to its promise to simultaneously lower its upfront premium. Currently the upfront premium is 2.25% and Stevens says it will be lowered to 1.00%. These actions are designed to help FHA increase its reserves which Stevens states are “perilously low.”
FHA claims that this will save the consumer money but that seems unlikely. It is hard to increase the revenue for HUD and lower the cost to consumers simultaneously. Let’s take a look at an example of a $200K purchase price with an interest rate of 4.50%.
Current
Purchase Price $200,000
Base Loan Amount $193,000
Adjusted Loan Amount $197,342 (includes upfront MI @ 2.25%)
Principle and Interest (P&I) $999.91
P&I + Mortgage Insurance (MI) $1090.35 (MI rate of .55%)
After Changes
Purchase Price $200,000
Base Loan Amount $193,000
Adjusted Loan Amount $194,930 (includes upfront MI @ 1.00%)
Principle and Interest (P&I) $987.68
P&I + Mortgage Insurance (MI) $1133.88 (MI rate of .90%)
As you can see from above, the consumer does start out with a lower loan amount because of the smaller upfront premium (that is usually financed into the loan, e.g. the consumer doesn’t pay it out of pocket), but because of the large increase in their annual premium, the consumer ends up paying $43.43 more per month.
Fortunately, the Deputy Assistant Secretary Vicki Bott announced on Tuesday August 10th that FHA would delay the change from September 7th to October 4th to help the industry get these changes made in their systems. So if you are considering buying or refinancing your home with an FHA mortgage, you need to get moving fast or it is going to cost you.
If you would like to read either of the the two letters reference above please click the links below.
I dont usually comment on blogs but i have to tell you well done
I dont usually comment on blogs but i have to tell you well done
I hope you will keep updating your content constantly as you have one dedicated reader here.