FHA Loans Just Got More Expensive

By Michael Ciavarini, Boston’s Certified Mortgage Planner

WASHINGTON DC - FHA like the banking sector, must also maintain capital ratios [reserves]. With the increased popularity of FHA in the absence of other alternative products they now insure about 30% of all new loans. FHA is nearing the limits of loans they can make based on their capital ratio [reserves]. In an effort to fix this problem, FHA will be raising their upfront mortgage insurance premium fees (UFMIP) from 1.75% to 2.25%. Additionally, they have requested approval for an increase in the monthly fee as well. They will also limit the high Loan-To-Value (LTV) financing to borrowers with a 580 credit score; a score under 580 will now require at least a 10% down payment (note: most lenders will not finance under a 620 FICO).

Definition

FHA - the Federal Housing Administration is not a bank. It is an insurance company that insures loans funded by the US Treasury. FHA is not a tax payer funder agency. It is self funded by the borrowers Up Front Mortgage Insurance Premium (UFMIP). What this article is saying is FHA needs to raise this figure if they are to insure more loans.

Ratios - what the article is referring to is the amount of reserves FHA has in relations to the amout of loans they are insuring.

Example

There are two types of Mortgage Insurance in play on every FHA loan.

1. UFMIP (Up-Front Mortgage Insurance Premium)

2. MIP (Mortgage Insurance Premium)

UFMIP is calculated currently as 1.75% times the base loan amount thus for a $350,000 loan the UFMIP is:

$350,000 * 1.75% = $6,125 which is at 4.875% $32.41 per month.

This amount can be paid in cash by you or the seller as a seller concession at closing or added to your base loan amount and financed as part of the loan as most do. Where does this money go you ask? To the United State Treasury to build reserves used to pay on defaulted FHA insured loans. This is FHA’s reserves. This premium is now going up 0.5% which in this example is:

$350,000 * 2.25% = $7,875 which is at 4.875% $41.68 a month

Thus the increase for this borrower is $1,750 or at 4.875% $9.27 a month. Increases are never a good thing but the impact to you the borrower is tolerable for the opportunity to put less down.

To offset the cost have your seller buy your rate down an eight of a point. Now the increase is free for you.

For information on how an FHA loan works or a seller concession give me a call and I will walk you through it.

Michael Ciavarini is a Certified Mortgage Planner for GuaranteedRate Inc.,  and a Radio Personality on Boston Money Matters talk shows. This strategy and his others have been featured on WBZ TV 4 News. Michael is a YouTubber, Blogger, Videographer and the creator of the V-PMP (Video-Personalized Mortgage Plan) which are revolutionizing the way Real Estate is presented, financed and sold. To view Michael’s videos visit his blog at http://BostonMortgagePlanner.com and subscribe to his RSS feed. 

Feel free to contact Michael at: mikec@bostonmortgageplanner.com, tel (617) 532-3972 preferred.

Blog: http://www.bostonmortgageplanner.com Corporate Site: http://www.guaranteedrate.com/mikec
Follow Michael on Twitter at http://www.twitter.com/BosMtgPlanner
Subscribe to his YouTube Channel at http://www.YouTube.com/michaelciavarini