Announced on Wednesday, the Federal Housing Administration (FHA) will be implementing important new changes to FHA home loans. Set to begin early spring of 2013, FHA has made key changes to help increase the reserves for the Federal Housing Administration as well as minimize loan defaults.
The first change to take effect is the increased MIP on FHA loans. Government has stated the premium will increase 10 basis points, or .10 percent. Currently the MIP is 1.25, but beginning spring of 2013, the MIP will increase to 1.35. Jumbo mortgages ($625,500 or larger) will receive a 5 basis point increase, or .05 percent.
Lifetime Up-Front Mortgage Insurance
The second change that will be taking place is requiring borrowers to pay the annual premiums for the life of their loan. Originally, FHA cancelled MIP on loans after 22 percent of the original principal balance had been paid. However, with the new changes, the MIP will no longer be cancelled and the borrower must pay the MIP until their loan is paid off.
Why did FHA make this change?
The reason a borrower must now pay the MIP for the lifetime of their loan is due to the fact that FHA is responsible for insuring 100 percent of the outstanding balance throughout the entire life of the loan. Also, FHA has foregone billions of dollars by cancelling the MIP after a loan reaches 78 percent of the original principal balance. By making this change, FHA revenue will significantly increase.
Increased Down Payment For Loans Over $625,500
With an FHA loan, a borrower only has to put down 3.5 percent of the purchase price. However, FHA made a change to the down payment requirements for loans greater than $625,500. Beginning this spring, a borrower must have a minimum down payment of 5 percent for an FHA loan.
According to the risk management team of the Federal Housing Administration,
“The changes announced this week will further contribute to the efforts made throughout the Obama Administration’s tenure to improve risk management at FHA and protect the Mutual Mortgage Insurance Fund. Because of these commitments, the changes made at FHA over the past four years have already added more than $20 billion in value to the MMI Fund.”
These new changes to FHA loans are set to take place Spring 2013.
In our previous blog post, Payroll Tax Holiday Affecting Homebuyers, we discussed the new premium mortgage insurance fees that got passed into law in December 2011.
Those fees are in place to finance the government’s tax break that will end up costing $33 billion. The tax break will be financed by increased the mortgage insurance on home purchases starting this year.
As stated in our previous article, “This means on average the monthly mortgage payments will be raised by as much as $15 on mortgages of $210,000; however, it will vary.”
Earlier we stressed the importance of purchasing a home sooner than later so that these increased fees will not be added to your mortgage. The government has not yet given a specific date that these fees will be implement. So as always, the moment we find out anything we will provide the information on our blog.
The only way you will be exempt from the increased mortgage insurance is if your loan is locked and in process before the Payroll Tax Extensions is implemented. Obviously, if you currently already own a home, these fees are not directed towards you. It is specifically only for new homebuyers.
If you are concerned about being affected by these new loan fees, then your best bet is to get a rate quote now and get started on your home purchase as soon as possible.