The commissioner of FHA, David Stevens, announced the changes to the current mortgage insurance structure at the beginning of this month.
It is expected that the changes to mortgage insurance structuring is to take place and go into effect to case numbers ordered after October the 4th of this year, 2010. A case number is typically ordered when a lender begins the loan process and needs to order the appraisal. The case number is connected to the property address, so you can not avoid these changes by ordering a case number prior to finding a property.
What are the FHA changes to mortgage insurance?
The upfront mortgage insurancethat is currently at 2.25% is going to be dropped down to 1%, most likely. This mortgage insurance is often referred to like this; Up-Front MIP, UPFMIP or UFMIP. Of the two changes regarding the mortgage insurance, this is not the surprising one. UP-Front MIP is the mortgage insurance premium that is allowed to be paid out of pocket or rolled into the new loan, and 95% of the time, it’s rolled into the loan. This is important to the majority of FHA borrowers because they are using FHA as a way to come out of pocket as little as possible, so a cost that can be rolled into the loan is not much of a worry. Multiply the Up-Front MIP by your loan amount, and that is how you get this factor.
The annual mortgage insurance, which is often known as the monthly, because the majority of the time, borrowers choose to pay this in a monthly amount, is increasing from .55% to .85% or even as high as .90%. This caught me off guard because this will effect the borrowers monthly out of pocket expense quite a bit. Typically an FHA borrower who is looking for a loan with the best option loan for the least down payment option is also looking to get the very lowest affordable monthly payment too. If you use a $150,000 purchase price as an example, here is what the change would look like: After 3.5% down, the loan is $144,750. The old annual, broken down into monthly, mortgage insurance would be $66 a month. With the new changes, the annual, broken down into monthly, mortgage insurance would be $102.53 a month…that’s $36.53 a month.
If you are looking to buy a home in the DFW and surrounding areas, such as Frisco, Plano, McKinney, Irving, Prosper, Dallas, or Little Elm, and you want to make sure you are working with an expert, give me a call and we’ll work through this together. Go to my Contact page at the top right of this website.