Mortgage Process

FHA Too Expensive for Home Buyers. There Are Other Options.

FHA says they should have done less business in the past and (to pay for their sins) they should do less business in the future. To help that process along, they drastically increased the Up Front Mortgage Insurance Premium (UFMIP), doubled the cost of the Monthly Insurance Premium (MIP), and will require the MIP to be paid for the life of the loan.

FHA MIGuess what? Their wish is coming true!  The Government Agency created in 1934 to “assist in providing housing opportunities” for American families saw their application volume drop by 50% in June. At a time when mortgage rates were near all time lows, FHA priced them self out of the market. Great help they are!

Many features of a FHA Mortgage make it an attractive mortgage option for First Home Buyers. However, the cost of the mortgage insurance makes the monthly obligation too expensive. I’m working on two transactions now. Each has challenges that could have been addressed with a FHA loan in the past.  One will be done as a conventional mortgage with a higher rate but lower MI for a savings of $60/month; the other, luckily, as a USDA Loan with a similar rate and MI that is 1/3 the cost of FHA premiums.

I don’t think I’ll recommend a FHA Insured Mortgage to my clients unless that’s the only way to get them in a new home.

Market Updates

FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA has confirmed that the Monthly Mortgage Insurance Premiums (MIP) Are Increasing for the home loans it insures effective April1, 2013.

If you are sitting on the fence deciding whether to buy a new home this spring,
Now Is the Time to Buy. It’s going to get more expensive as the year progresses.

1.   Beginning April 1, 2013, FHA Monthly Mortgage Insurance Premiums Are Increasing by .10%
         •   For loans with down payment of between 3.5  and 5.0%, the MIP will increase
              from 1.25%  to 1.35%
         •   On loans with a down payment of more than 5.0%, the MIP will increase from
              1.20% to 1.30% 
            ◊   The increase will add about $13 a month to the payment on a $150,000 loan.
                  Not a lot … But it will affect buyers Debt-to-income (DTI) ratios and could
                  prevent some  buyers from qualifying for mortgages they might have
                  qualified for prior to the change

2.    FHA will also eliminate the cancellation of these premiums when the loan is paid down to 78% of the original appraised value.
         •   For loans with less than a 10% down payment, the MIP will be required to be paid for the entire 30 year term of the mortgage.
            ◊   The new monthly MI premium on a $150,000 FHA mortgage will be about $160.00 per month. Buyers with just a 3.5% down payment – even those putting 10% down – will pay this premium for the entire term of the loan … without regard to the value of the home and the decreasing balance on the loan in years to come.
            ◊   Do the math … that’s an additional $38,400 a home owner will have to pay in insurance premiums over a 30 year period

Remember, this is the 2nd FHA Monthly Mortgage Insurance Premium Increase  in 12 months. Last year’s 0.10% increase was mandated by the Temporary Payroll Tax Cut Act signed by President Obama in 2011. The Act has expired, but the premiums continue. This time the increase is needed to shore up FHA’s capital reserves which are in jeopardy of default.

Personally I think that FHA’s Monthly Mortgage Insurance Premiums Increase is a step backwards for the Real Estate Market.  
HUD and FHA claim their mission is to create a strong, sustainable housing market that will bolster the economy and protect the consumers. First Home Buyers will feel the impact of these changes and present a barrier to home ownership.  That’s ironic because the new administration claims to be an advocate of medium income households. Strange way to show support?

Bottom Line: The housing market is beginning to see an increase in home sale. This will beDon't sit on fence tempered by an increase in home prices and the expected increase in mortgage rates. Now is the time to consider conventional financing as a viable mortgage option and a take a hard look at other mortgage programs with lower down payment requirements and cheaper MI

Call Me @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. We’re licensed in all 6 New England states; NY and FL too. I’m here to help.

FHA Market Updates Mortgage Process

FHA Mortgage Insurance Premiums Are Not Cheap

With FHA-insured mortgage rates being quoted at about 0.750% lower than comparable conventional loan rates, home buyers often expect a significant savings on their monthly payment by choosing a FHA mortgage to finance the purchase of their new home.
This is not always the case. FHA imposes an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75% to all its borrowers. This UFMIP is usually added to the base loan amount increasing the borrowers’ total loan amount and essentially cutting the equity created by their small down payment in half. In addition, FHA charges an annual Mortgage Insurance Premium (MIP) of 1.25% that is divided by 12 and added to the monthly mortgage payment.

Here’s an example:   A First Home Buyer purchases a single-family house for $155,000 and makes the minimum 3.5% ($5,425) down payment. Their base loan amount is $149,575. The UFMIP of $2618 is added to this base increasing the total loan amount to $152,193. The monthly principal and interest payment is calculated on this total loan amount. Using a 3.25% interest rate, the monthly mortgage payment is $662.04. Added to this payment is 1/12 of the annual MIP ($155.81) increasing the total monthly mortgage obligation $817.84. If taxes are $250 per month and Homeowners insurance (HOI)is $60 per month, the First Home Buyer’s total monthly obligation…Mortgage Principal and Interest + MIP + Taxes + Insurance…would be about $1,128 each month.
By comparison, and without going into much detail, payments on a 4.00% rate conventional mortgage with a 5.00% down payment could be about $820.00 per month including MI (plus taxes and HOI).

Why So Expensive?   Overall, Mortgage Insurance premiums on a FHA-insured mortgage are much higher than a comparable conventional loan. And this is from a government agency supposedly committed to making it easier and less expensive for First Home Buyers to get into the housing market.
Why?  This is because the FHA had a whole lot of loan defaults between 2008 and 2011 and its reserve funds are way below what is required by law. In order to remain solvent, FHA has increase mortgage insurance rates 4 times in the last 4 years. Yes, new home buyers are paying for the sins of the past. Plus, it is expected that premiums will increase again in 2013…we just don’t know how soon.

The Good News!   When FHA does increase their premiums,  all existing FHA-insured borrowers will still pay their current interest rate and MIP premium. So if you are looking to buy your First Home and take advantage of an FHA-insured mortgage the sooner the better…really!

Call Me
to review you mortgage options and take advantage of my FREE Mortgage Pre-Approval service. I’m here to help.

What is the FHA

What is the FHA?

What is the FHA?
The FHA’s main objective is to assist in providing housing opportunities for low and moderate-income families. FHA insured mortgage loans are a type of public assistance and historically have allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. Anyone who is a U.S. citizen, a permanent resident alien, or a non-permanent resident with a work visa and who meets the FHA’s lending guidelines can apply for a FHA-insured mortgage loan.

The Federal Housing Administration, commonly known as “FHA”  is an agency of the federal government that provides mortgage insurance on loans made by FHA-approved lenders. Congress created the Fedral Housing Adminstration in 1934. The FHA became a part of the Department of Housing and Urban Development in 1965.

Every loan … credit card car loan, or mortgage … carries a certain element of risk. Lenders are most concerned with the risk of default … the risk that homeowners won’t repay their mortgage loan. Low down payments and low credit scores increase lenders concern about risk. The smaller the down payment, the greater the risk that the borrower will walk away from the house when times get tough.

FHA mortgage insurance provides FHA-Approved Lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay-off the lender’s mortgage in the event of a homeowner’s default. The added comfort level of FHA insurance enables lenders to consider applications from buyers with as little as 3.50% down payment and credit scores in the mid-600 range. Loans must meet strict requirements established by the FHA to qualify for insurance.

As my Dad used to say, “Nothing in life is free.” The cost of this mortgage insurance is passed along to the homeowner. An up-front mortgage insurance premium (UFMIP) equal to a percentage of the loan amount is due at closing. This UFMIP is normally added to the loan amount and financed over the term of the loan. In addition, there is a monthly mortgage insurance premium (MIP), also referred to as PMI … that is included in the monthly payment. 

In summary … FHA enables homebuyers to own their own home with a small down payment. Little equity means greater risk to the lender. Greater risk means higher interest rates. FHA mortgage insurance reduces lender concerns. Borrower pays UFMIP and MIP to reduce lenders’ risk.  When compared to conventional financing, an FHA-insured mortgage loan provides those homebuyers with limited cash and lower credit scores with the best low-cost financing option.

Avoid disappointment and future regret! NOW is the time to buy! Call me today for details on FHA financing. I’m here to help.