In today's real estate market, many buyers are opting for the FHA route for obtaining their mortgage. FHA loans are different from Conventional loans in many ways, mainly an FHA loan is a Government loan that only requires a 3.5% down payment and a Conventional loan isn't, and it requires a minimum of 5% down payment. Last year, the fees and Mortgage Insurance Premiums (MIP) had a change in their calculations. This caused many home buyers to be priced out of the market with their payments going up considerably.
As of April 1, 2012, FHA has yet again, changed their fees and MIP calculations. This change shouldn't price people out of the market, but there is a difference in payments that will make people say, "I'm paying how much more for the same house because of fees?"
After April 1, 2012, the Up Front MIP will go up to 1.75% of the loan and the Monthly MIP will be calculated on 1.25% of the loan. What does this mean?
At $150,000 - Today's 3.875%, the mortgage payment will increase approximately $18.
At $200,000 - Today's 3.875%, the mortgage payment will increase approximately $24.
At $250,000 - Today's 3.875%, the mortgage payment will increase approximately $31.
You might think it's not that big of a deal for an extra $20 here or $30 there, but it's a MONTH! That's $240 here or $360 there a year! It adds up. Now, multiply that out over 30 years. My daughter's dance class is $700 a year, and her swim lessons that she's starting in a couple of weeks are $780 a year. I'm struggling to justify those expenses as she's only 4. The increase is about half her dance class. Do you have kids doing extracurricular activities? How much do they cost, and will this increase impede into that budget?
After April 1, 2012, you don't have any choice but to accept these terms if you're obtaining an FHA loan. However, prior to that date, you have a choice. As long as you start the loan process prior to April 1, you're in the clear. You do NOT have to close on a house prior to April 1. That means, if you're thinking of buying a house in the next couple of months, and you're going to go the FHA route, you need to get pre-approved for your loan in the next month. Today is March 1 and there are 31 days in March. Let's get going! Get off the fence and keep some extra money in your pocket instead of waiting until after this important deadline!
If you're looking to buy a house in the Austin TX area, please contact me TODAY so we can get you approved now!
**There are other changes that effect other markets with loan limits over $625k, but the Austin area has a max FHA loan limit of $277k, so those higher priced issues do not effect my market.
**Are You Packed Yet?**
Donna Harris, REALTOR®
RE/MAX Austin Skyline
www.DonnaHomes.com
Donna@DonnaHomes.com
austin-texas-homes-for-sale.com
Austin TX Real Estate and the surrounding areas of Lakeway, Bee Cave, West Lake Hills, CedarPark, Round Rock, Spicewood, Circle-C, Steiner Ranch, and everywhere in between... Hill Country Austin TX Real Estate and beyond. Whether you're buying or selling an Austin home, I'll be with you every step of the way.
For real time Austin TX listings,click here.
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Copyright© 2012 By Donna Harris, All Rights Reserved. You may re-blog with links back to this post.
* FHA Increases Their Up Front and Monthly Mortgage Insurance Premiums April 1 2012 - How Does it Effect You? * was first published on donnahomesblog.com.
Very nicely done, Donna - a clear and concise explanation of the impact of upcoming FHA increases to monthly mortgage insurance premiums!
I have heard about this change. Hard to believe they are doing this during an election year.
Donna... this is major news, and you have explained it very well. This information should be explained to every buyer we are working with now, because they really need to get on contract, and get that loan applied for before these regs take effect.
Thanks for such an efficient and well-present post. "suggested"
Donna I wish the politicians would read your blog and then maybe they would also understand what effect it will have on the fragile Real Estate Recovery.
Hi Donna,
Great break down..this is major news and you have set the record straight! I agree with Endre..the politicians need to read your blog and understand the effect it will have on familiries trying to buy a home. Suggested for sure!
Perfect. This was the post I wanted to write after every lender bombarded me with this news. Now I can reblog it and enjoy my evening.
Excellent blog! You breakdown the increases in costs remarkably well .. and in a way that most can understand. This is REAL money we're talking. I've been trying to get the message out about this ever since the changes were announced. Your help is greatly appreciated ... as every buyer we can get to move NOW instead of later is saving dollars. Thank you!
Gene
Donna, thanks for the explanation. Looks like FHA's only real benefit is the lower down payment.
Clearly FHA is going out. That's too bad. It was such a great program to get someone into a home. Usually their first home. Kristine :)
Donna,
Fabulous way to spell it out. Disturbing that there are so very many RISING fees on buying a home.
All the best, Michelle
I had heard a little of this on the news a couple of days ago. Breaking it down in cost per month, puts it into proper perspective. This is likely to affect a lot of first time homebuyers, buying with minimum down. However, for those with larger down payments (in the 20% or better range), there may be lending which won't require MIP/PMI.
Donna: thank you. I think FHA volume will go down. The big question is what happens now to those borrowers with less than perfect credit who were on the cusp? Hopefully Fannie Mae or Freddy Mac will step into the fray. As it is, it appears loans are going to get more expensive for all concerned. Thanks again for the post!
Hi Donna, I heard about this from my preferred lender the other day. Yes, that kind of money does add up over the whole year. I am sure buyers can find something more worthwhile to spend this money on.
Donna - sad news. It affects first time home buyers, it affects all the buyers with credit lower than 680 regardless the down payment. It affects the home pricing, too. Every 10 dollars in monthly payment today are equal to $20,000 in price. It will also affect those who are willing to re-finance. In many cases refinancing will not make sense any more even with substantialy lower interest rate because of increase in MIP.
With no competition, FHA can do whatever they want.
wow, after reading the comments above, it sounds like the sky is falling. per one comment, "Clearly FHA is going out." oh man, don't say it is so! And "every 10 dollars in monthly payment today are equal to $20,000 in price." interesting, very interesting.
FHA is increasing the mortgage insurance premiums to stay in business for the long term. If a buyer cannot handle an additional $24 per month in housing payment, maybe they shouldn't be buying a house.
By the way, the payment on $20,000 at 3.875% is $94 per month. However, Svetlana is correct in her statement regarding the mortgage insurance increases affecting FHA refinances. The monthly insurance premiums are already more than double what they were prior to October 2010.
Aside from the lower down payment requirements, FHA is also more lenient regarding employment history, debt to income ratios, and Gift funds. The entire down payment can be a gift, but did you know that if you get a gift for a Fannie/Freddie loan, and you are putting less than 20% down, you have to at least 5% of your own funds?
I would prefer a higher upfront mortgage insurance premium than an increase in the monthly though.
Will consumers ever get a break? Are they really trying to make homeownership impossible...I mean like you said if a person really wants to buy a house they will, pay the costs, however, people also want to have a life.
Thanks for spelling it out so clearly Donna. I'm not sure that our government actually knows what it is doing most of the time.
Donna -- Looks like this is not an april day fools joke. I think this may put yet another halt to the real estate market.
Good information - I like Erica (#18) am going to be sharing your post with agents in my office. Thank you!
That's a very good info, Donna. Saved and will share with some of my buyers who cannot decide despite the fact that they need to go only FHA way for their mortgage.
Donna, that's a very clear explanation of the increase in FHA fees.
I guess it's necessary to (hopefully) prevent FHA insolvency and another tax-payer bailout like the $140+ Billion bailout of FNMA and FHLMC. FHA is on the verge of insolvency and some experts are sure it'll happen and soon. Hence the increased fees. Incidentally, 90% of Conventional financing is government financing.
Sure won't help anything, that's for sure. could cause a few folks on the edge not to qualify, but to be honest if they are that close to the edge, maybe they should change their approach, and scale back their expectations.
Well looks like buyers cant catch a break...maybe one day
Donna, great explanation on the new FHA costs which buyers do need to be aware of...it just all adds up expense-wise for buyers...get that giddy up going now and don't delay if you are house hunting!
All this said through your excellent post and the great comments, I see an opportunity here to March 31. I am startng a personal contest with myself to get as many people to apply for a loan as I can.
It amazes me that in the middle of a housing crisis when the government is trying to get the housing market back on track it raises the FHA MIP rates again. FHA is one of the few options borrowers with limited cash have to get into housing market. I'd like to see the statistics that show this increase is necessary.
I have been trying to get the buyers going so they can save a few dollars now.
Donna - thanks for sharing the thorough information and breakdown. It's a great explanation that wiill definitely help others to better understand the changes.
Donna - We too have a couple that need to read this. Thanks for posting this. We have a couple of first time homebuyers we are working with debating going FHA or not.... Thanks
Donna, this is one of the best written explainations of the FHA increase I have read! Thank you!
If FHA is Insolvent- So is HUD!
FHA is the only entity for HUD that actually makes money!
They are upping the fee so that they can still afford programs like Section 8 housing ect...
If you lose FHA financing for what ever reason in the future- 2/3 of the people on this page will need to find new careers, because FNMA and Freddie will not pick up the slack. They will actually tighten their guidelines, because they will then be the only game in town.
Welcome to the new world order.
Good Post!
Dont forget that the price of a mortgage has increased in many other areas as well.
As a lender I see the cost to the consumer and it is truly unfair to the homebuyer.
But of course I don't cry about it to the borrower because that would be bad.
Very well put together, clear, concise explanation and the only addition I have is that there is an additional increase coming later in the year, YIKES
We have been keeping in the loop on this with our lenders and it is going to have an impact for sure on buyers. I know I have had a few buyers who would have been priced out with $20 more a month in payment.
Doug mentioned it was hard to believe they were doing this in an election year.......But Doug, it's only about 65 cents a day!!
I saw that the other day & thought that we just don't need any increases as this point in the recovery. Any increase will bump people out of the opportunity to buy. I didn't know that as long as you started the process you would be under the old numbers. At least that's a positive for someone that's already started.
Thanks for the post. It sounds like the government is trying to kill the economy.
Unfortunately, many RE agents won't press their buyers to make a decision to buy before the law goes into effect. However, at $30 per month, that's over $10k on a 30 year mortgage, but simply low ball an offer to offset the $10k and it wouldn't matter anyway, right? Wrong, the buyer still has to pay the new fees, so buy now and save even more money, right? Right!
Unfortunately, many RE agents won't press their buyers to make a decision to buy before the law goes into effect. However, at $30 per month, that's over $10k on a 30 year mortgage, but simply low ball an offer to offset the $10k and it wouldn't matter anyway, right? Wrong, the buyer still has to pay the new fees, so buy now and save even more money, right? Right!
Remember that this increase was mandated in order to pay for the two months of unemployment insurance, aka the payroll tax cut. Remember all the news back in November & December 2011? I think those two months have already passed. But these fees keep on giving...
I like to see post that have useful information like yours. Simple and to the point and most of all it is something we all need to know.
Donna,
great post! Very clear and I love the way you put the dollar terms into real life. The new FHA changes also effect the ability to Streamline Refinance in this difficult appraisal environment for those FHA mortgage holders who have a current rate of 5.0% or more. The increases will not allow the homeowner to save the mandatory 5% Net Tangible Benefit to the borrower!
John
I have a buyer in mind who this info is perfect for. Seems like the consumer is getting squeezed from all angles. Thank you Donna Harris for explaining new FHA fees in plain English.
Thank you for all the comments from everyone. I'm glad you are able to use this information with your clients. I like to explain things in simple terms like real-life situations. Sometimes it's a Starbucks coffee a week, or a happy meal a week situation, depending on the type of buyer.
It is important to note that the buyer must be under contract for a home PRIOR to April 1st to "beat" the increase. Lenders will most likely not have the ability to pull FHA case numbers after 9 PM on March 30th, so a contract by March 30th will be needed. An FHA case number can't be assigned until there is a property and a loan application in process.
Maryland Mortgage Mama
and we can thiank the cuurent administration for this increase...they agreed to a two month extension of payroll tax cuts in exchange for a permament increase in FHA loan fees...another great deal by those in Washington that are charged with helping and protecting us
Good information Donna. Thanks for the post. I am going to share this with some people.
Hi Donna, I don't like the increase either but it means keeping FHA solvent down the road I am OK with it.
Raising the cost lowers the buying power of buyers which in turn reduces the value of houses which causes more homeowners to be deeper underwater on their mortgage which causes more foreclosures.
Thanks for the reminder, Donna. I had heard about this change from our in-house lender but hearing about it again on ActiveRain will keep to the forefront. That's what I like about ActiveRain--the great information I get to help me in my business!
I tried to refinance at a much lower rate but was told I could not because of the increase in insurance made it not worth while... I was unaware of this increase that just took place until attempting to refi! I never miss a payment and am never late, and on top of that my homeowners insurance keeps going up for different reasons.. i will have to sell or eat it to get ahead. I know of people that weren't making payments and they were handed killer deals.. BS.
Donna - FHA Increases up front and monthly mortgage insurance premiums April 1 2012 will have an impact on borrowers. Thanks for the information.