FHA (Federal Housing Authority) has announced sweeping changes to the fees they will charge for monthly PMI (Private Mortgage Insurance)
in Mortgagee Letter 2013-04, dated January 31, 2013.
Historically, FHA loans have been geared towards helping potential homeowners who have not so good credit or a lower down payment the opportunity to obtain financing to purchase or refinance a home.
But in recent years FHA has felt thebneed to increase both the Up Front and monthly PMI premiums, which has seen an increase in a borrower’s loan amount and monthly mortgage payments.
In April, 2012, FHA increased the UFMIP ( Up Front Mortgage
Insurance Premium)from 1.10% to 1.75%.
What this meant was for every $100,000 borrowed, FHA charged a 1 time fee of $1,100 that increased to $1,750. FHA does not required the borrower to bring this fee to closing, but rather allows them to finance it as part of the loan. So the $100,000 loan with the old premium became a $101,100 loan. Under the revised UFMIP the $100,000 loan now becomes a $101,750 loan. FHA does give the borrower the option to pay this premium at closing and not roll it in to the mortgage.
NOW FHA is going to increase the monthly PMI associated with an FHA loan, as well as increase the duration of time the PMI stays on the loan.
Here are a few example for a FHA loan with less than 10% down.
MONTHLY CHANGES on loans assigned after April 1, 2013
FHA loans with 15 and 30 years fixed interest rate will see an increase of 1/10th of 1%, or $10 per $100,000 borrowed.
So a $100,000 loan with see an increasein monthly PMI from $125 a month to $135 a month.
TERM OF MONTHLY PMI on loans assigned after June 3, 2013
Previously on FHA loans with less than 10% down the FHA premium would go away after approximately 5 years as long as the borrower had at least 22% equity in the home.
Now a FHA loan assigned a case # on or after June 3, 2013 will have monthly PMI for the duration of the mortgage, no matter what the equity is on the home.
So how do these changes affect you? The new homeowner?
Although the changes are not earth shattering, they are an increase to a borrower’s monthly mortgage payment as well as the overall cost through the years to obtain an FHA loan.
If you are on the fence when it comes to refinancing your home with an FHA loan, I suggest you speak with a professional loan officer as soon as possible before the fees go in to effect.
If you are in the process of looking for a new home, note that an FHA case number can only be assigned when a borrowers has an accepted contract on a home. The case number goes with the address of the home, not the borrower, so any pre-approval you may have prior to the above referenced dates does not mean you fall under the old fees.
Other fees are changing as well to FHA mortgages with different down payments and loan terms.