Thursday, February 21, 2013

FHA - Changes Coming

April 1, 2013 - FHA will be making changes to it's programs in order to continue to create capital and strengthen FHA and its insurance program for many years to come.

If you weren't aware, FHA (the Federal Home Administration) was originally created to help new and first time home buyers purchase a new home using a program that required little down payment and used Mortgage Insurance, both upfront and Monthly Mortgage Insurance, backed by FHA to support these low down payments. 

Over the years the Upfront Mortgage Insurance has changed from 2.25%, to 1.00%, to 1.50%, to the current 1.75%, as well as the monthly mortgage insurance fee from .55% to multiple levels up to its current level of 1.25% per month.  In addition, the Monthly Mortgage Insurance amount, while it was required to be paid for the first 5 years, it would be fully removed once the outstanding principal balance vs the original purchase price reached 78%.  Those above items will be affected by the upcoming changes on April 1, 2013.  Here is a list of the new changes for FHA that will affect new home buyers or anyone looing to use FHA:
  • Monthly Mortgage Insurance fee increasing from 1.25% to 1.35%.
  • Borrowers will be required to pay the Monthly Mortgage Insurance for the life of the loan
Those directly affect the borrower.  In addition, there are internal changes as well that will have an effect on some but not all borrowers, i.e. manual underwrites are required when credit is below 620 and a total debt ratio is greater than 43%, potential increase to the down payment requirement for principal balances above $625K (probably won't affect AZ market - max FHA is still $362,250).

All of this just points to a more expensive option for borrowers who seek to use FHA.  It doesn't mean that FHA isn't an option, it just means that the option will be more costly come April 1, 2013.  For further reading you can read the HUD mortgagee letter at:

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