Will FHA Changes Affect You?
FHA loans are one of the most popular loans home buyers obtain. They are mortgage home loans insured by the Federal Housing Association that are popular with first-time homebuyers because they make buying a home easier, or possible, thanks to less rigid borrower requirements.
Two Changes For Buyers
- The first change takes place on April 1st. It may not seem like that big of deal for most homebuyers, but the FHA will increase its mortgage insurance premiums by 0.1 percentage points, for all new loans. While that doesn’t seem to make a huge difference for your payment, the 2nd change that takes place June1st will.
- One June 1, 2013, the FHA will no longer cancel FHA Mortgage Insurance Premium (MIP) once an insured mortgage reaches 78% loan-to-value (LTV). Instead, FHA mortgage insurance will last for the loan’s full lifetime (which can be up to 30 years). The agency is making this change because roughly 12 percent of all FHA default claims occur on loans for which homeowners no longer pay MIP; and because home values are known to rise and fall. By collecting FHA MIP for the full 30 years of a loan, the agency can minimize future loss and more quickly recapitalize its reserve fund.
Below is an example with a purchase price of $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term.
(Currently, when the unpaid balance reaches 78% LTV of original purchase, the MIP on FHA loans can be released after five years.)
The FHA’s mortgage insurance changes don’t apply to mortgages closed prior to the April 1st and June 1st deadlines.
Therefore, if you’ve been considering an FHA mortgage for your next home purchase, or a refinance via the FHA Streamline Refinance program, don’t delay. The longer you wait, the more you will pay in mortgage insurance.