New FHA Rules

[kaylie]

Anyone see this? money.cnn.com/2013/01/31/real_estate/fha-mortgage-premiums/index.html?iid=HP_LN&hpt=hp_t2

PMI for the life of the loan if you put less than 10% down is one of the changes.

NEW YORK (CNNMoney)
Government-insured mortgages are about to get more expensive.

The Federal Housing Administration, which is the largest insurer of low-down payment mortgages, announced Wednesday that it will raise premiums by 10 basis points, or 0.1%, on most of the new mortgages it insures.

Translation: A borrower opting for a 30-year, fixed-rate mortgage who puts 5% or more down will now pay an annual insurance premium of 1.3% of their outstanding balance. And someone who puts less than 5% down will pay a premium of 1.35%.

The agency said it will also raise premiums for borrowers with jumbo loans -- or loans of $625,000 or more -- by 5 basis points, or 0.05%, and increase the minimum down payment requirement on these loans to 5% from 3.5%.

FHA said it will require most buyers to pay insurance premiums for the life of their loan. A policy that was put in place in 2001 allowed borrowers to cancel premium payments once their debt fell below 78% of the principal balance. One exception will be for borrowers who put more than 10% down at the time of purchase.

Additional new policies include a requirement that any mortgage for an applicant with less than a 620 credit score and debt-to-income ratio above 43% must be underwritten manually. Lenders who want to issue loans to these applicants must be able to adequately document why they decided to approve the loans.

The agency also decided to put new restrictions on reverse mortgages, no longer permitting retirees to take such large, upfront payments.

Related: Where are the first-time homebuyers?

The changes are an effort to reduce the agency's exposure to risky loans and bolster its financial reserves, which have been depleted due to high delinquency rates from the mortgage crisis. The agency did not say when the new rates will take effect.

Last spring, FHA increased both premiums and upfront costs on mortgages. Such hikes make it tougher for mortgage borrowers -- especially first-time purchasers who can't afford the large down payments most private lenders require today, according to Jaret Seiberg, a Washington policy analyst for Guggenheim Partners. "They are the ones most likely to turn to the FHA for credit," he said.

And that could have a negative impact on the housing market overall. "You can't have a healthy housing market without a constant influx of first-time buyers," said Seiberg. To top of page

[sjh722]

Ouch, PMI for the life of the loan? FHA PMI is expensive enough as it is.

[Deleted]

PMI for the life of the loan? Yikes. The percentage increase for premiums would likely cost most FHA loan holders only a couple hundred a year. However, you add that up over another 25 years or so and that is a lot of money.
Ideally, you would be able to refinance and get rid of the PMI at some point but this won't pay off if interest rates rise. Sure, you get rid of $200/month PMI but it is 5 years down the road and interest rates are higher so you pay $200/month more in interest. I'm curious how much this will deter first-time buyers.

[Deleted]

Nevermind.  I found the answers.

1. Just new loans.
2. Don't know when it goes into effect.

[LoveTrains]

Jan 31, 2013 15:58:40 GMT -5 jenny1980 said:

Oh wow. Another increase in PMI + keeping it forever? Ouch. You can always refi, I suppose, but then you might miss out on the current awesome rates.



Our PMI through FHA is around $500/month. That would give me the sads if we couldn't be done with it at some point.

That is why we did conventional. Our PmI is only $130/ month on our conventional loan and it was going to be over $300/month on FHA. Eff that noise.

[jlt19]

I'm curious what the difference between FHA and conventional PMI rates are?

I'm shocked at how much some of you pay! I know your loans are more, but damn. We pay $104/month on a $235k loan.

[kaylie]

Jan 31, 2013 16:04:18 GMT -5 @forcuatro said:

Nevermind.  I found the answers.

1. Just new loans.
2. Don't know when it goes into effect.

Actually, I found this on the FHA website: portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf

It looks like the higher insurance rates go into effect April 1 and the never ending PMI goes into effect June 3.

[SusanBAnthony]

O, so we gotta buy a house before June!

I just checked this week and it was 3.25 for FHA, and around 4 for conventional with less than 20% down. So we may do FHA. I don't know yet.

[LoveTrains]

Jenny that sucks on the 10% down. I know my sister in Seattle did FHA also. We only did 5% down on our new house. I thi k FHA was only a quarter point lower on the interest when we locked.

[kershnic]

I wish we could buy now.

[hamster]

Our PMI is only $130 a month, but I still can't wait for it to be gone and use that money towards something worthwhile. Like principal.

[Deleted]

Jan 31, 2013 18:45:39 GMT -5 namasteak said:

Educate a mortgage dummy: How does one avoid PMI? Is FHA a lender first time buyers can go through?

You avoid PMI by buying with 20% down.

FHA is a federally backed mortgage program that helps buyers that have little money down (as low as 3.5%), little or no credit, or other finance a credit issues that would make it impossible to get a conventional mortgage.  FHA (Federal Housing Administration) loans generally have slightly lower interest rates but higher PMI.  In our case we chose a conventional with 5% down because the interest made the payment $18 more per month but the PMI on an FHA would have bene $145 more per month.  Not a tough decision.  : )