Real quickly, let me explain the role of FHA. The Federal Housing Administration is a government backed entity that insures mortgage loans.
By law, FHA is required to hold a 2% reserve in their MMI fund (mutual mortgage insurance fund) to protect against defaults and losses. Well, following a longer than expected tough housing economy (and more than a fair share of “bad loans”), FHA is currently posting a negative balance of -1.4% in their reserves.
In an effort to replenish the MMI fund, FHA has announced some drastic changes – the first, to increase the annual mortgage insurance premiums collected on all FHA backed loans. The second major change is a game-changer in my opinion. FHA is reversing their mortgage insurance cancellation policy, requiring all borrowers from April 1 forward to pay mortgage insurance for the entire term of the loan.
PLEASE NOTE – This only applies to NEW mortgages originated after April 1. If you currently have a mortgage, your terms DO NOT change.
The New FHA Mortgage Insurance Policy
Washington State home buyers will pay 10 basis points (.10%) higher annual premiums for FHA backed loans. This increase will apply to all FHA loans, both 30-yr and 15-yr terms.
For example, on a $250,000 purchase, your monthly mortgage insurance premium will now be $276/month, compared to the previous MIP of $256/month. But that’s not all, there’s more…
The New FHA MIP Cancellation Policy
Although this change doesn’t go into affect until June 3, 2013, it still hurts. FHA announced a second change to their mortgage insurance policy – the agency is reversing it’s policy to remove or cancel mortgage insurance premiums on the remaining balance of the loan once the loan-to-value has dropped below 78% of the original loan amount. Currently, a FHA borrower can apply to have their mortgage insurance removed after 60 month (5 years).
Beginning on June 3, 2013, Washington State home buyers will pay the mortgage insurance premiums attached to the loan for the entire term of the loan. For loans in which the loan-to-value is less than 90% at the start of the loan’s term, mortgage insurance premiums will be collected for 11 years.
PLEASE NOTE – The new FHA mortgage insurance guidelines changes WILL NOT affect FHA Streamline Refinances if the loan being refinanced was insured prior to June 1, 2009. Please see Dan Keller or click here to see if you are eligible for a Washington State FHA Streamline Refinance.
There are other options that may better suit your financial goals such as a 3% down conventional mortgage or a 5% down conventional mortgage. If you would like a side-by-side comparison of the other options that are available, please let me know and I will gladly design a mortgage planning analysis for you to review. I can be reached directly at (425) 350-7136 or via email at email@example.com.
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