FHA Mortgages Are About To Get More Expensive

Federal Housing Administration will raise its annual Mortgage Insurance Premium by 10 basis points or 0.1%  on most of the mortgage it insures.  To understand it easier, let's say a borrower opting for a 30-year, fixed rate mortgage who pays 5% or more down payment will pay an annual insurance premium of 1.3% of their outstanding loan balance. While a borrower who paid less than 5% down will pay a premium of 1.35%.

FHA will also increase the premiums on jumbo mortgages ($625,000 or more) by 5 basis points or 0.05% up to the maximum allowed annual mortgage insurance premium. 

The premium increases does not include some streamline refinance transactions.

FHA will once again require borrowers to continue paying the annual Mortgage  Insurance Premiums for the remaining balance of their loan.  In 2001, FHA has cancelled the required MIP once the principal has reached 78% of the original principal balance. However, FHA remains responsible for insuring 100% of the outstanding loan balance until the loan is fully paid. FHA estimated loss of billions of dollars in premium revenue because of the automatic cancellation policy.

FHA will also propose an increase in down payment for loans above $625,500. The agency will require a minimum down payment from 3.5 to 5 percent.  

By reinstating the old procedure of collecting premiums based on the unpaid principal balance will permit FHA to keep a significant portion of the forfeited revenue due to the automatic cancellation policy. Raising the premiums for borrowers with jumbo loans will encourage the private investors to participate in the housing finance market.

According to FHA, the changes Will further contribute to the efforts made throughout the Obama Administration’s tenure to improve risk management at FHA and protect the Mutual Mortgage Insurance Fund.  Because of these commitments, the changes made at FHA over the past four years have already added more than $20 billion in value to the  Mutual Mortgage Insurance Fund or MMI Fund. (Source:www.fha.gov)

In addition to the increase in Mortgage Insurance Premium and down payment for jumbo loans, there will be qualifying limits for each type of loan. See table below:

New Loan Limits 2013	Single-Family	Duplex	Tri-plex	Four-plex
FHA
Anchorage/Mat-su	$355,350	$454,900	$549,850	$683,350
Kenai Peninsula	$271,050	$347,000	$419,425	$521,250
HUD 184
Anchorage/Mat-su	$405,353	$518,936	$627,247	$779,525
Kenai Peninsula	$307,900	$394,176	$476,447	$592,116
Conventional
Alaska	$625,500	$800,775	$967,950	$1,202,925

*FHA Loan Limits Source: https://entp.hud.gov/idapp/html/hicost1.cfm

*HUD 184 Loan Limits Source: http://portal.hud.gov/hudportal/documents/huddoc?id=sect184maxloanlimits.pdf

* Conventional Loan Limits Source: https://www.fanniemae.com/content/announcement/ll1211.pdf;jsessionid=C1554E487D821CDEBCB135A9529EB64B.cportal-cl04

The National Association of Realtors (NAR) believes that the reinstatement of loan limits will help make mortgages more affordable and accessible to middle-class potential home buyers. NAR predicts that the new loan limits provision will help home buyers with incomes below $100,000.

For more information about the new rules of FHA, please refer to 

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-010.  Or if you have any questions, you may contact me.

Current Housing Turning Into Seller's Market

Total existing home sales (including single-family, condos and co-ops)  in the month of December increased by 12.8% at 4.94 million this year compared to last year's 4.38 million-unit level.  See data below:

         Source: National Association of Realtors

According to NAR chief economist, Lawrence Yun said, "Record low mortgage interest rates clearly are helping many home buyers, but tight inventory and restrictive mortgage underwriting standards are limiting sales." he said.  "The number of potential buyers who stayed on the sidelines accumulated during the recession, but they started entering the market early last year as their financial ability and confidence steadily grew, along with home prices.  Likely job creation and household formation will continue to fuel that growth. Both sales and prices will again be higher in 2013."

The total housing inventory at the end of December fell 8.5% to 1.82 million existing homes available for sale.  Although the limited inventory, overall sales are still expected to increase.  The biggest effect of limited inventory is that the home prices tend to increase.  However, considering all the factors, home ownership is still affordable.

The inventory is expected to have a seasonal rise in spring.  But clearly, a seller's market may be developing.

MORTGAGE RATES

Although the current mortgage interest rates are at historically low with rates slightly above 3.5% for 30-year fixed rate.  It is expected to increase as the year progresses but it should remain under 4%.

For Alaska current mortgage interest rates, refer to http://www.ahfc.us/buy/resources/current-rates/.

The housing is showing plenty signs to recovery - from increase in existing home home sales to decrease in mortgage interest rates.  According to Jed Kolko, Trulia chief economist, housing market will return to "normal" in 2-3 years time as long as the market shows the same improvement.  For questions on housing, please don't hesitate to contact me or you can visit my website - http://www.jamesteamrealestate.com.