I’m often told that the information provided here is educational. Part of my own education is knowing the right people to whom I both direct my questions and clients. As such, I’ll have a few posts in the next couple weeks from lenders whom I trust. First up is Matt Hodges discussing how FHA loans (which require at least 3.5% down payments and comprised about 10% *of the closed transactions in our market** in the past 14 months are becoming far less attractive. Next week’s post should be an interesting one, too.
FHA does not want to be your first choice, period.
Since December, HUD has been anticipating changes to the FHA loan program. On January 31, HUD released a mortgagee letter which changes the program. To read the entire mortgagee letter, click here.
The first change goes into effect on April 1st – no fooling! Here’s what changes:
For loans less than $625,500 (which is everything in our market that uses FHA, as the high limit is $437,000 in the Charlottesville MSA), annual MIP increases 10 basis points (bps). This means that the $200,000 loan now costs $16/month more.
The June 3rd changes:
1. If one puts down 10% on a purchase, mortgage insurance premiums will last at least 11 years, which is up from the current 5 years.
2. If one puts down less than 10%, mortgage insurance premiums are PERMANENT, regardless of future loan to value.
3. 15 year loans with 78% initial loan to value no longer has annual mortgage insurance waived initially – you must pay for 11 years.
The threat of lowered interested party (seller, Realtors, etc) concessions from 6% to 3% of the sales price, has not materialized yet. Our belief is that could prevent the lower priced homes from being able to use the FHA program, which might be discriminatory. It is still being considered, and it might have a ceiling and then tiered percentages below that.
Keep in mind, these changes are for pulling a case number, NOT closing. So, as long as we get the loan application done by March 29th for the first change and May 31st for the second set of changes we will still be using the current standards.
4. MIP = Mortgage Insurance Premium
5. Basis points = percent of the loan amount that you pay the insurance on. For example, 10 basis points on the annual MIP = .1% of the loan or $200,000 x .1% = $200 / 12 months = $16.67 per month.
Basically, talk to a great lender early in the process.
* The Charlottesville MLS has a “sold terms” category whereby the listing agent states the type of transaction – FHA, conventional, cash, etc.
** “our market” – Charlottesville, Albemarle, Fluvanna, Greene, Nelson
It’s always a great time to buy – Zero Hedge
Just how big is the FHA? – NAR
FHA – More expensive than expected – Keeping Matters Current