Changes to FHA

FHA Changes - AGAIN!
Author: Diego Quintero
Published: August 27, 2010 at 6:04 pm

On September 7th, the Federal Housing Administration will make yet another change to Mortgage Insurance Premiums. It can be considered a change for the worse, but I consider it a positive change for a couple of reasons.

A few months ago, the FHA increased mortgage insurance premiums during the time period where the tax benefit was in full force. These changes may have slowed the momentum of home-buying that the tax benefit was producing and may have thwarted buyers. The sales were great during the tax benefit, but this may have been counterproductive.

So while the tax benefit has ended, a new plan must be implemented to allow the market more incentive to buy real estate. This new plan enables home buyers to pay a 1% Mortgage Insurance Premium Funding Fee (MIP/FF) and pay a monthly premium of .90%, as opposed to the 2.25% (MIP/FF) and .55% (Monthly Premium). It’s less expensive up-front, more expensive on a monthly basis, but beneficial overall.

What does this look like in real numbers? Well, a $100,000 loan amount would yield a MIP/FF of $1000 versus $2500. Additionally, the monthly mortgage premium would be $45.83 with the current premium but increased to $75 when the new premium is implemented. So, how do I view the benefits of these changes?

The stabilization of the FHA is paramount to enable new home buyers to purchase homes with a low down payment. Providing the FHA with a few months of receiving the 2.25% up-front MIP, allowed the cash flow for the agency to increase substantially while the tax incentive was in full force. The new decrease of the MIP/FF to 1% will decrease the cash flow, but prove to make the agency more money in the long run, as the monthly premium is almost double. The FHA is banking on home owners to stay put and own a home for a long while.

How do you get out of paying the monthly premium? Homeowners can remove mortgage insurance when the home loan is 78% or less than the home value. Since it will be tougher to remove the mortgage insurance due to a slower economic upturn, the FHA will be banking on the money for quite some time, further increasing their cash position, and enabling their programs to be offered to many more home buyers.

The equity position of a new home buyer is better than in the past, for obvious reasons. A new home buyer utilizing FHA finance must provide 3.5% of a down payment as a minimum investment. When you wrap in the old 2.25% (MIP/FF) the new home buyer was sitting on a mere 1.25% equity position. As far as closing costs are concerned, this is the only fee that can be wrapped in, and actually increase the loan amount. So, we can all see that a 1% (MIP/FF) will enable home buyers to have a better equity position from day one of home ownership (2.5% equity position). Although not much, it’s better!

Find out more info on FHA and their recent changes at www.hud.gov. If you have questions and do not wish to wait on recorded lines, remember that your local mortgage consultant will have the answers as well.



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Read more: http://technorati.com/business/finance/article/fha-changes-again/#ixzz0z4tO7XYd