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.
A copy of the Mortgagee Letter can be viewed at my web site,
www.JoesMyMortgageGuy.com or at www.FHA.gov
Yes,,the information sounds correct. Despite the increased PMI, the overall savings due to the lower interest rate more than offsets that increased fee. Also on your new loan eventually the PMI will go away, allowing you to realize even more savings!
Actually PMI is required until you have 20% equity, not 10%. To answer your question: On FHA loans originated June 3, 2013 or later, PMI will stay on the loan regardless of equity, It will be a permanent fee. So if you’re looking to purchase or refinance a home using FHA financing, I suggest you do if before June 3, 2013 to avoid this becoming a permanent fee.
If you are looking for a pre-approval please feel free to call me.
Of course not knowing your exact situation, tough to know exactly what loan you are going in to. With 10% down, have you explored an 80/10/10 loan with 0 PMI? In this case you do a first mortgage for 80% of the purchase orice, a 2nd mortgage for 10% of the purchase price and 10% down. This will avoid PMI and should get you in to a better interest rate on the 1st,,assuming you qualify
My fiance and I are currently in contract for a house through an FHA loan. The contract is stated to close on or before June 4th. Are we in the clear because we're already in contract or does the closing process need to complete before June 3rd to avoid this? What if it were to close exactly on the 3rd?
With 20% down you should not have to pay PMI, regardless of what state you are purchasing a home in. Good luck with your buy! It's a great time to take advantage of this market!
We currently rent a home in Royal Oak, MI and have been preapproved about two months ago and are going to start looking tomorrow again. We found a home for sale by owner in Oak Park, MI. Do you think it's feasible to close on the home by June 3rd? Thank you!
Of course there can alway be unforeseen circumstances that can delay any closing.
I understand the upfront percentage increase regarding closing costs for the PMI is going up, but is the change on the monthly PMI also going to 1.75% as well? Just trying to determine how much someone can expect the monthly PMI price to be on a new home with the new terms. Is there a calculator for those numbers, or is it just the 1.75% of the balance divided by 12?
I just want to make sure I understand the changes to PMI. I have a home loan under 200K -conventional loan and have more than 50%+ equity. If we refinance for 15 years fixed, we will not be impacted by PMI, correct?