What is Happening with FHA and Will it Impact You?

March 23, 2011 at 8:17 AM Leave a comment

Changes for the FHA program are on their way for April 18th. This video lays out those changes, the impact, and alternatives for borrowers and homebuyers.

From the video: “In the past few years, FHA loans have seen a remarkable resurgence in popularity. When most of the low down payment and subprime loan options dissolved, many turned to FHA once again as the answer for homebuyers who might not have 5% or more to put down. This chart shows that in recent years, FHA accounts for close to 30% of the total purchase mortgage market.

Is all this added business good news for FHA? Yes and no. With such demand comes pressure, and it is FHA’s capital reserves which are being pressured currently. Last fall we witnessed an increase in FHA’s monthly mortgage insurance premium, and in the middle of next month, April 18^th, FHA is implementing an additional increase of .25%.

What can we expect to see after April 18^th? The monthly premium will be changing from a factor of .90% to 1.15%. On a purchase price of $200,000.00, this will result in a monthly insurance increase of $40.21 per month. Now, $40 may not be considered a great deal of money by some, but it is worthy of some attention if you are about to apply for financing using an FHA guarantee. If that is the case, it is highly recommended that you apply soon so that an FHA case number can be ordered for you prior to April 18^th.

Here’s another way to look at it. If you were able to spend the extra $40.21 per month as a principal reduction instead of paying for insurance, you would save just under 3 years on the life of your loan, or approximately $15,000 in finance charges over the life of the loan.

It is interesting to note that the cost for PRIVATE mortgage insurance, unlike FHA, has been steadily decreasing recently. For a similar loan amount, the factor would be .67%, or $107 per month instead of $185 per month with an FHA loan. Also, FHA has an upfront premium of 1% and the private mortgage insurance does not, so that is an additional savings. With the private mortgage insurance, however, the typical down payment required is 5% instead of 3.5%, and it must be from the borrower’s own funds instead of from a documented gift like the FHA program allows.

With so many changes occurring in the mortgage world, seemingly at the speed of light, it is so beneficial to have a trusted advisor and partner looking out for your best interest. At MDI Mortgage, we are happy to review many different loan options with you, making sure that your financing solution is optimal for your entire financial picture and future direction.

For more details about this change, contact me!”

~Sherri Dyer, Advisor & Mortgage Maven

writing for MDI Mortgage, a full service mortgage company located in Bar Harbor, Maine, Mount Desert island

Entry filed under: Economy, Educational Video, FHA, MDI Mortgage, MGIC, Mortgage Insurance, Mortgage News, PMI, Rates, Sherri Dyer. Tags: bar harbor, FHA, home loans, mdi mortgage, MGIC, Mortgage Insurance, mount desert, PMI, rates, sherri dyer.

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