Well, the door to home ownership via an FHA loan is getting a little harder to open come April 1.
High delinquency rates among FHA loans is causing mortgage insurance premiums (MIP) to rise again this year in order to maintain reserve funds required by law.
Despite the fact that mortgage delinquency rates are down as a whole, the FHA holds a disproportionate share of the mortgage default market. Higher rates of default among FHA borrowers has forced the FHA to increase the cost of its MIP five times in the last five years.
Now FHA mortgages, a favorite loan product for home buyers with lower down payments and less than stellar credit scores, are about to increase again. An associated change is that borrowers will get stuck with the higher fee for the life of their loans.
The Federal Housing Administration has announced several changes to FHA loans, including increasing the MIP fee that is added to the borrower’s monthly mortgage payments. The FHA will also tighten the requirements for borrowers with low credit scores and will propose raising the down payment on larger loans.
The higher fee for mortgage insurance takes effect on April 1, 2013, with annual mortgage insurance premium on new FHA mortgages increasing by 0.1 percent, the equivalent of 10 basis points, to 1.35 percent of the balance of the loan. A current borrower with a $200,000 FHA mortgage pays about $2,500 per year, or $208 per month, in mortgage insurance.
After the increase the FHA estimates the change will add $13 a month to the average borrower’s monthly payments
Starting June 3, borrowers who take out new mortgages will have to pay for mortgage insurance for the life of their loans if they are putting less than 10% down, which describes the majority of FHA borrowers.
The FHA will reverse a policy that automatically canceled required premium payments after loans reached 78 percent of their original value. Most FHA borrowers will now have to continue paying annual premiums based on the unpaid principal balance for the life of their mortgage loan. The agency estimates it lost billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this cancellation policy.
Under current rules, the FHA has to stop charging the borrower for mortgage insurance when the loan reaches 78 percent of the original loan amount.
Wallingford PA Real Estate – Wallingford, PA 19086
