FHA Increases – Buying a Home Is Now More Expensive

Effective for FHA loans for which the case number is assigned on or after October 4, 2010, FHA upfront and annual MIP will change as follows:   

– Upfront MIP –    1.00% on ALL mortgage terms (from 2.25%)
  

– Annual MIP –      0.90% for LTVs*8 greater than 95% and terms of more than 15yrs (from .55%)
  

– Annual MIP –      0.85% for LTVs less than or equal to 95% and terms of more than 15yrs (from .50%)

* No Change in Annual MIP for <=15yr Terms (No Annual MI) In general, monthly payments are going to INCREASE due to the higher annual MI payment.

** LTV = Loan to Value

(the above was sent along by Jason Crigler with Crown Mortgage)

For your reading pleasure, here is the letter from Assistant Secretary for Housing/Federal Housing Commissioner David Stevens (PDF), referencing HR. 5981, To increase the flexibility of the Secretary of Housing and Urban Development with respect to the amount of premiums charged for FHA single family housing mortgage insurance, and for other purposes.

Single Family/Attached – $437,000
Two family – $559,450
Three Family – $676,200
Four Family – $840,400

For an example of what these increases mean you homebuyers in Charlottesville, I’m going to borrow Rhonda Porter’s math (no longer available):

Using an interest rate of 4.25% and a based loan amount of $400,000; it looks like this:

FHA Case Number BEFORE September 7 October 10, 2010:

$400,000 plus $9,000 = $409,000 amortized for 30 years at 4.25% = principal and interest of $2012.03 plus the annual mortgage insurance of $183 = $2,195.03

FHA Case Number issued September 7 October 4, 2010 and after:

$400,000 plus $4,000 = $404,000 amortized for 30 years at 4.25% = principal and interest of $1,987.44 plus the annual mortgage insurance of $300 = $2,287.44.

The new FHA mortgage insurance premiums have an increase in payment of $92.41 based on this example.   This impacts both purchases and refinances using FHA insured mortgages.

I spoke with a couple folks at FHA a few weeks ago, trying to determine what percentage of home purchases in Charlottesville’s MSA were FHA and met a brick wall. Suffice it to say, a large percentage of home purchases were FHA … a quick search through the Charlottesville MLS shows that 18% of the 1681 transactions this year were marked as being FHA by the Realtors doing the data entry. I’d give that a margin of error of +- 6%.

RELATED:

The Zillow blog has a decent FHA roundup.

The WSJ had a story recently focusing on Why FHA Loan Limits Could Fall in Your Neighborhood.

The current limits are also higher because they’re set using housing bubble-era median prices, which are significantly higher than today’s prices that would be used to recalculate the new loan limits. This means if Congress doesn’t again extend the higher limits, they’ll be starting from a much lower level next year, and the multiplier effect—115% versus 125%—will be lower, too.

The Obama administration supports extending the loan limits for another year for these reasons. “We’re not talking about wealthy millionaires. We’re talking about the average American’s ability … to finance a home,” said David Stevens, the FHA’s commissioner, at a Senate hearing on Thursday.

The National Association of Realtors says that nearly one in five U.S. counties—including almost the entire state of California—would see FHA loan limits fall if the current extension expires.

The limits don’t expire until the end of the year, but the real-estate industry is anxious for Congress to pass an extension soon because banks aren’t going to wait until Dec. 31. It takes a few weeks to close a loan, so banks are likely to stop accepting deliveries of high-cost loans in November if it’s unclear where the maximum loan limits will be come 2011.