FHA on the Prowl

On September 7th 2010 FHA is expected to make changes to the upfront and monthly mortgage insurance premiums for FHA mortgages.  Current FHA loans have an upfront mortgage insurance requirement of 2.25% and a monthly requirement of .55%.  The proposed changes will reduce the upfront expense to 1% however increase the monthly expense from current levels to .85% -- 1.5%. This move will certainly cause restraints on debt to income ratios and borrowers will need more income to qualify. 

Let’s compare the two:                                                                                    Current                                                                       Proposed

$150,0000 Loan amount

Upfront MI                                                                   $3253                                                                         $1447

Loan Amount                                                             $148,006                                                                   $146,197

P&I                                                                              $749.92                                                                      $740.75

Monthly MI                                                                  $67.83                                                                        $182.74 (if FHA chooses the max amount)

Payment (excluding taxes and ins)                         $817.75                                                                      $923.49

WOW!  Don’t you love when value is sold however true value is missing?  FHA has not published what they will increase the monthly PMI amount to however as we’ve discussed on a number of occasions, FHA is desperate to save more money for the MMIF capital reserve account so a worst case scenario is expected.  That have the right to max out at 1.5%. 

If that does occur, the same home will now cost $115 more to purchase.  Or, on the flipside of that, the payment at $150,000 was $817.75.  To maintain that same payment after September 7th, you must now show properties with a sales price of $130,000 to meet that same payment expectation. 

Remember, FHA is still pushing very hard to reduce the seller paid cost from 6% to 3% and I would assume they’ll win that battle. 

The above information provided by: Patrick McCarroll Benchmark Mortgage