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.