Happy New Year! As we move into 2013 we going to see some specific changes throughout the real estate landscape. In this blog, I’d like to point out some important changes that will be happening with FHA loans.
FHA Home loans will have new changes going into effect on January 1st, 2013. Recently, HUD, which oversees the FHA announced their latest budget numbers and announced a slew of new methods they will use to try make the agency’s finances more balanced.
Specifically, here are the two most important parts of their announcements for someone considering get an FHA loan after January 1st.
1) FHA Mortgage Insurance annual premiums (MIP) will be moving from 1.25% to 1.35% for borrowers who make a 5% or less down payment.
2) The policy of a homeowner being able to cancel the MIP on their FHA loan after 5 years, if they are at 78% of the value of their home will be eliminated.
Now moving from 1.25% to 1.35% on an annual basis may not seem like a big deal, but is just the latest escalation of mortgage insurance premiums on FHA loans. Just three years ago, monthly mortgage insurance on FHA loans were set at .55%. That means that in the past three years as the Government has crafted programs to push down home loan interest rates, the FHA has raised the annual cost of their mortgage insurance from $91.67 per month to $225 per month on a $200,000 loan. That’s quite a jump and unfortunately, as we had warned in past articles, it doesn’t seem as there is an end in sight.
In addition, the new policy to never allow for the cancellation of this mortgage insurance will also hurt new homeowners who decide to keep FHA loans for the long term. As they will never be able to eliminate the mortgage insurance associated with it. In fact, those who have an existing FHA loan, also may be further deterred from refinancing into a new FHA loan, knowing that they will never be able eliminate the mortgage insurance associated with it.
In the end, this may not be the last changes we see with FHA loans, but it is yet again in our opinion a negative for the FHA loan going forward. However, with mortgage loan rates at all time lows and FHA loans still only requiring a 3.5% down payment, FHA loans still provide a very attractive option for buyers with a lower down payment requirement.
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