FHA Changes Comming April 1st, 2013

Effective April 1st 2013:  FHA borrowers should make sure their lender has the purchase contract and pulls the case number prior to April 1st!

Once again FHA has made moves to bolster capital reserves.  Without getting too mush in to the why, lets just say HUD felt that their reserves may dip too low, so they are jacking up the costs for FHA buyers.  Here’s the details:

FHA Takes Steps to Bolster Capital Reserves

On Wednesday, the Federal Housing Administration announced a series of changes to strengthen the Mutual Mortgage Insurance Fund and improve risk management. Most of the changes were outlined last fall in the wake of the FHA Actuarial Report showing the MMI Fund with a negative economic value.  Among the changes, FHA will:
 

  • Increase its annual mortgage insurance premium (MIP) for new mortgages for case numbers assigned on or after April 1:  
    • by 10 bp for all 15-year, and all 30-year less than $625,500 – what this means is on a 150k loan the payment woudl go up $12 per month.
    • adds a new 45 bp annual premium for 15-year loans with LTVs less than 78% (previously, these loans had no annual MIP, now on a 150k loan a borrower would pay $56 per month)
  • Require most FHA borrowers to continue paying annual premiums for the life of the loan, effective for case numbers assigned on or after June 3:
    • loans with LTVs > 90%, MIP will be for the life of the loan
    • loans with LTVs <= 90% MIP will remain in force for 11 years

This is the big change as it means most borrowers will never get out of paying the mortgage insurance which current drops off when the loan reaches a 78% LTV and they have been paying it for 5 years.  Although statistically most borrowers are not in a mortgage more than 5- 7 years with rates at historic lows this time frame is expected to increase.  On a 150k loan a borrower would pay $168 per month for mortgage insurance the entire life of the loan.

Additionally FHA will require lenders to manually underwrite loans for borrowers who have a decision credit score below 620 AND a total debt-to-income (DTI) ratio greater than 43 percent; effective for case numbers issued on or after April 1.  Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded.

The Bottom Line:  Realtors working with FHA borrowers and buyer obtaining FHA Financing should try to get an accepted offer over to their lender prior to April 1st, 2013  to avoid these increase.  Better yet put 5% down and get a conventional loan to avoid the high mortgage insurance associated with FHA financing!

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