FHA first proposed the monthly mortgage insurance changes in the beginning of 2010. Bill H.R. 5981 was first passed by the House in the spring and was just passed by the Senate the other day. What does this bill do for FHA mortgages? They have projected that it will yield approximately $300 million per month to the FHA insurance fund.
So what are the new FHA changes? - For terms greater than 15 years -
LTV's <= 95% will increase the monthly fee to 85 bps
LTV's > 95% will increase the monthly fee to 90 bps
And lastly, it will reduce the Upfront Mortgage Insurance Premium, UFMIP, from 225 basis points to 100 basis points.
The plan is to go into effect by September 7th, 2010 on all FHA case numbers. FHA gives it's reasons to this new plan. FHA letter from David H. Stevens
UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -
So what do the actual changes mean to the average borrower that will rely on FHA loans when purchasing a new home or refinancing?
- The Old Plan -
LTV's <= 95% the monthly fee is 50 bps
LTV's > 95% the monthly fee is 55 bps
Example of the changes regarding the FHA monthly mortgage insurance known as MMI or annual mortgage insurance premium and the FHA upfront mortgage insurance premium known as UFMIP.
UPDATE BELOW in chart - The 2nd column, the upfront mortgage insurance premium, is usually added into the base loan amount. In this scenario, that is what I did. It's not actually a cash savings out of pocket, but just a reduction in the new loan amount. I guess it wasn't clear, because a few people said that this whole change was going to help those with less money out of pocket. The buyer still needs 3.5% out of pocket, which is the down payment.
As you can see, it would be much cheaper monthly with the old plan, even though you pay $3,317 more upfront, on top of your loan. This can also be a tax write off since it's included in your principal. Your break even point on this type of scenario is 47 months, which is roughly 3.9 years. After this break even point, you would have started to spend more money in reality. This is how FHA will increase it's mortgage fund. As you can see, it won't be increased as quickly upfront, but over a longer period of time. So if you held onto this mortgage for 7 years, you would have spent approximately $2,522 more.
Now, there are several other factors to consider when reviewing this kind of information. Just for the fact that your original balance on the loan will be $3,317 lower and in 7 years, still be that much lower. And as I mentioned, you would have a little more of a tax advantage on the higher balance though.
All I wanted to do was to present the basics of FHA loans and not get into the extreme details on how one could show either side. What could this do to a potential home buyer? It could reduce your purchasing power. In this scenario, if you had originally qualified for a $275,000 loan with qualifying ratios of 31/43, what would your new purchase price be.
- New Purchasing Power after September 6th, 2010 -
With the new FHA monthly mortgage insurance and the FHA upfront mortgage insurance premium changes, your purchasing value would drop approximately $10,000, a purchase price of $265,000. Now, these are just averages, because this will all be based on the actual purchase price. Meaning if values are higher or lower, the total amount could change some. But this should give you a good understanding of what changes lie ahead for FHA mortgages in the near future.
UPDATE : Travis Newton did a similar post, using a $200,000 purchase price and as you can see, the mortgage payment inceased by $45.29/month. Notice *** FHA Changes
UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -
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For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
_____________________________________________________________________________________________________________________________
FOLLOW ME ON FACEBOOK
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- FHA Home Loans - Mortgages -
Experience & Knowledge at its BEST !!!
Follow me on:
______________________________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Jeff, this is great information for those of us who do mostly FHA mortgages & what's to happen...especially in the amount the buyer may be able to afford- it can make the difference ...great info on the MIPp
Jeff, thanks for sharing this for all. At least the UFMIP is going down...I feared we would still face a higher UFMIP and higher annual MIP.
Great info Jeff and a nice analysis. I'm going to steal some of your info for my own post:)
I certainly could have written a post of my own, but you have laid it out so nicely, I just went ahead and reblogged it. :-)
Jeff, as always, your analysis is spot on. Thanks for the information.
Jeff--Great explanation in terms anyone can understand!
Thanks, the explanation is a whole lot easier than some I have seen!
Well Done Jeff, I re-blogged this as well as suggested this for feature. It benefits all of us to have things clearly explained so that we may better clarify any misunderstanding held by our Buyers in using FHA financing. Thank you again for a very clear and concise explanation.
Thanks Jeff!! Appreciate the timely update - passed it along to our readers!
Thanks, Jeff!
This a great information to have. I am reblogging it to pass along to more people. The truth must be known.
Brigita
Thanks Jeff!
I have a buyer in almost this exact price range. So if I am understanding this right, if her case # is assigned before 9/7, will she be under the old program?
It will be interesting to see how much this will drive prices down to compensate!
I appreciate the fact that you explain what is happening on the FHA front in simple terms so that even we real estate agents can understand it! Thanks for sharing, Jeff - and for allowing your content to be passed along to our readers.
GINNY... . it certainly can make a difference and my pleasure... and thanks for the compliment.
KEVIN... . I agree... I wrote about this about 4 months ago, as an assumption that the upfront would be like 1.75% and this would have made even things worse. Thanks
DREW.... . steal? Can I arrest you? seriously, thanks and thanks for the kind words.
JOHN... . I almost read your comment as if you stated you could have written a better post... lol I need my eyes check... thanks and thanks for reblogging this..
GARY... . my pleasure and thanks for the compliment.
TERI.... . I know, next time I think I will use Doctor key terms and phrases... lol Seriously, thanks for the compliment.
GARY,.... . well, thank you very much. It's nice to know... thanks
WILLIAM.... . I hope this helps some of your buyers and maybe to get off the fence. And thanks for suggesting this and for the very kind words and compliment.
CYNDEE.... . my pleasure. It was your husband that kind of alerted me to pass this along to those that I am associated with on Linkdin... so thank him and thanks for stopping by.
BRIGITA... . I hope it helps many...and thanks for reblogging this, for passing it along, and for the compliment.
VICKI... . yes, if she applies for a mortgage with a property address prior to 9/7/10. FHA will be releasing the Mortgagee Letter hopefully in the next week when the President signs off on this. thanks
KENT.... . my pleasure and I am glad that it can be easily understood. And my pleasure in regards to allowing this to be shared... thanks for your input and for your feedback.
jeff -
Thanks for posting. Very important info presented very clearly.
Jeff, I always appreciate your consumer friendly information. I'm off to send it to my readers too!
Thanks Jeff - going to re-blog you as well as this is very good information. Bookmarked you too so I can always come back to your links. You're the best!
Wow Jeff, you have as many re-blogs as comments! I don't think I've ever seen that before. It's no wonder though, great info. Thanks for getting the word out.
Jeff -- I appreciate the time you took to clarify a little bit on these changes. It looks like these changes overall will have an adverse effect on a buyer's abillity to purchase a home,, maybe I'm missing something here.
JIM.... . my pleasure and I am glad it was easy to understand... thanks
CONNIE.... . thanks for the kind words and for the support... and thanks for spreading the word..
STEPANIE...... thanks and thanks for reblogging this and for the polite compliments..
LEE & PAMELA..... yea, there are a lot of reblogs, which is nice. The most reblogs I have had though were about 46 reblogs. In any case, thanks for the polite comment.
JOAN.... . my pleasure... and yes, these changes will effect the buyers position.. not much, but enough. And if some values go up some, which in some areas they have, it will even reduce that buyers purchase price more. thanks
Jeff, thanks for the post. This is a very valuable overview of the new FHA regulations.
Hi Jeff -- I'm starting to work with more FHA buyers, so thanks for writing such a clear post. I'm probably missing something here, but how is FHA going to increase their insurance fund if their net positive doesn't start for 47 months?
Well written, easy to understand explanation, Jeff. Thanks!
Jeff, very good, informative post. It is very easy to understand. I had planned on writing something regarding this issue, but there is really nothing more I need to add. I think I will re post!!!!
Thanks again!
Rich
Whew - $10000 is a lot of money in our market. Most of our loans are VA, but we have been seeing quite a number of FHA loans lately. Will be interesting to see how this change affects us. Thanks so much for the great explanation, as usual.
It will help those that are cash poor upfront but can afford the larger payment...but will hurt those that are cash rich at closing but will have a harder time making the payment on down the road...but it is what it is...thanks for the info!
Why not increase the MIP rates, no sense in having the economy recovery, it would not be in the best interest of the administration for the economy to get better. Excuse me, I am being very cynical today, but the handwriting is on the wall.!!
well thanks for the update and the generous amount of information and dissection of the details
VJMc
Thank you for the information. The change does not appear to be significant but it is there
Excellent post, thanks. I teach a continuing education class and will refer to your post.
Question, is the picture in the masthead the same guy as the profile pic??
Thank you for bringing this up, its important that people know.
Jeff, great explanation! Thanks.
Jeff, thanks so much for an excellent post. As usual, your explanations were at the same time quite thorough, and very easy to understand. That's not an easy thing to do. Great job !
Thanks for your easy to grasp and understand explanation of what's coming for folks getting FHA loans in the very near future. I'll re-blog for folks in our area.
Sue of Robin and Sue
I suppose it will help those that have less cash up front, but hurt those that are tight on qualifying for the monthly debt to income ratio.
Isn't allowing the borrower to come in with less $ up front but expecting them to pay higher monthly payments part of what got us into trouble in the first place? I mean, if the buyer has nothing invested in the purchase, they are more likely to walk away?
Thank you - what a great explanation.
Thanks for the well written, easy to understand post. I too will be making copies for my clients.
Jeff, Thank you for the post.I will bookmark it and read it again and share with buyers.
Jeff, thanks for the update, many of these Government Insurance Programs are hard to explain to the consumer...how the changes will effect the homeowners in the future...the graph makes it easy to see the differences.
well that sums it up nicely. so what was really accomplished, and for those of us who see our average fha loans run from $75-125,000 i'm guessing the difference will be less.
typical govern(mental) experience. lots of activity but questionable productivity.
Jeff,
Sounds like a good reason for homeowners to refi once they have the equity if they are still in the home after the break even point arrives
Thanks again as I will reblog to my readers!
Mike
Jeff, great post, well presented, I'm not sure what they were thinking!
Jeff - thanks for the updated information!
WILLIAM... . good to see you and thanks, it was my pleasure.
CHRIS..... that is a good question. When they first talked about this change, I thought they would drop the upfront from 2.25% to 1.75% or 1.5%.. making them recoup money quicker upfront. But the only thing I can think of is that once someone buys a house, that they will be living in it for 7 to 10 years now. Think about it... how long will it take once you buy a house in today's market for your house to really appreciate in value. And I bring this up because it would be very hard to refinance down the road, even with a FHA streamline.... but then again, why would you want to refinance with a 4.5% rate or even a 5% rate. So if you look at the first paragraph under the chart, the last sentence.. I tell you that you would have spent $2,522 more after year 7... so maybe that is what FHA is hedging? Keeping in mind that the average home buyer keeps their house for about 6.7 years? thanks for the question.
FRED.... . my pleasure and thanks for stopping by.
RICH..... thanks for the compliment and for reblogging this, getting the word out.
MARY ANN.... . sure, 10 k could be a lot in some markets... could mean the difference in one house to the next... and thanks for the compliment.
MIKE...... . not sure how it will help those that are cash poor... the down payment requirements are the same as before... but I will try contacting you about this.. unless my brain is not working. thanks
MARY... . I am not sure.. I have told several people in my industry, why not go back to the same way as the early to mid 90's.. when it was like 3% upfront... I didn't do the numbers, but maybe because FHA will get more in 7 years? Who knows.. thanks
VINCE..... . my pleasure and thanks for stopping by and commenting...
STAN.... . no, it's not huge, but $70 extra a month, or even $30 extra, could make a difference for some. How many? That is unknown... thanks
MIKE.... thanks for referring to this post and for that polite compliment. In regards to the picture in the header, yes, it's the same person... me.. I had someone do this for me and used that pic.. it's about 10 yrs younger... lol Thanks
ADAM.... . my pleasure and yes it is... I have already e-mailed this to many of my borrowers, making them aware.. thanks
PAMELA..... . my pleasure and thanks for the compliment and for stopping by.
Thanks Jeff. I re-blogged you and sent it to 2 other agents.
Jeff, this community is really lucky to have you to update us on this stuff!
Thanks Jeff, as always you are on top of it
Thanks for the update, Jeff, and for the easy-to-understand comparisons of the old versus new FHA plans.
Jeff: Thanks for taking the time to lay out the different scenarios. I appreciate it. Some in our business may think that this will stall loans further. I'm not so sure. We are living in unprecedented times where everyone is a little nervous meaning they can't make up their minds. Until the economy starts gaining traction (at this point it looks like that is at least a year away), I expect business to be pretty challenging. Don't get me wrong. There are always opportunities. It's just going to be a rough and bumpy road for a while. Again, thanks for the post!
Great information Jeff and thanks for pointing out the real costs of these changes to the consumer.
Jeff, consider this post reblogged! It will probably be a few days to a week before I hear about this from my broker but thanks to you, I know today!
I very rarely get involved in FHA loans and often miss the changes. Thanks for the post and am glad it was featured.
Jeff,
Thanks for the information. FHA will still be the loan of choice for many of our buyers. If a buyer has not been able to amass a significant down payment, FHA is he best - perhaps, the only - way to go.
KAREN...... thanks God I am not a Dennis Miller then, right? Otherwise you all would need thesauruses...lol Seriously, thanks for the kind words and for the polite compliment.
ROBIN & SUE..... my pleasure and thanks for reblogging this and for the compliments.
CATHERINE.... .you are the second person to make the statement and it doesn't really lower the cash out of pocket. The upfront mortgage insurance is usually included in the total loan amount. But thanks for bring this up because I am going to add that into my post above for clarification. thanks
SUSAN.... . my please and thanks for the compliment...
BILLI.... . my pleasure and I think making copies to pass out is a good idea.. thanks
JESUS.... . why? So that FHA can replenish the FHA insurance fund, to keep FHA going. They talk about it more in the letter from FHA. And thanks for the compliment.
GITA.... . my pleasure and I hope that your buyers find it useful.
STEVE..... I agree, hence why I love doing graphs or charts. In many cases, this makes it easier... thanks
JAY..... don't get me started on the gov't... but yes, the lower the purchase price, the lower the difference in payment will be. thanks
MICHAEL.... . not sure how you can actually think that if the break even point is in 7 yrs. Besides, why would one refinance if they are getting rates under 5%? The MI will be there for another 4 yrs... unless the value of the property goes up significantly. thanks
DAVID..... it's the gov't, they don't need to think.. lol Besides, I actually do understand this move and don't have a problem with it. If FHA is not able to stick around, then the housing market crashes for good. In any case, thanks for the polite compliment.
BARBARA JO..... my pleasure and thanks for reblogging this...
I would also like to thank you for this easy and concise explanation...
Jeff: BOTH of us can be thankful you are not Dennis Miller. He is too young to be an old windbag, so he is simply full of hot air. You, my friend, are neither.
Speaking of Dennis Miller, it is too bad he is so insecure that he feels he has to try and impress the public with his "forced" vocabulary. He just sounds silly, although the right wing continues to "lap it up" when he appears on their shows.
Jeff thanks for the information. As stated above your explantion was easily understood.
Jeff thanks for explaining this ... I'm definitely reblogging...
Lori Cofer
ERICA.... my pleasure... so that should be 3 deals, right? lol Seriously, thanks for sending this out and for reblogging it.
PAT... . well thank you very much for those kind words and for your support..
DAVE.... . my pleasure and thanks for stopping by.
BILL.... . I am glad it was easy to understand.. and thanks
PAUL.... . it could stall loans... we aren't sure.. but if anything, it reduce the purchase price of that borrower. And I see a bumpy road for the next 2 years. Thanks for your input.
GABE.... . my pleasure and thanks for the polite compliment.
FRANK & SHARON.... glad I could get this to you sooner. When you say broker, do you mean in real estate? What about your loan officer? And thanks for reblogging this.
CORRINE.... . if you do them not, you are welcome. It could come in handy if you come across some buyers soon.. and thanks about the feature.
JOHN.... . I totally agree with you 110%... and I write about the comparisons in regards to FHA & conventional loans about every 3 months. thanks
REBECCA.... . my pleasure and I am glad it was easy to understand.. thanks
KAREN..... well, I am glad that I am not Dennis Miller either... he killed Monday night football for me for a whole year. How boring... lol thanks for stopping by again.
JENNIFER.... . you are wlecome and I am glad it was easy to understand...
LORI..... my pleasure thanks for reblogging this
Great information Jeff. Thanks for posting the link on fb too.... Your always on the money :)
ROLAND... thanks for the kind words & compliments....
UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -
Jeff, I guess this is the price we have to pay to keep FHA available and solvent.
Working on getting those last minute Case #'s ordered before Monday.