FHA changes PMI

[lys]

A FYI if you are looking to purchase a house in the near future.  FHA 30 year fixed loans that have less than 20% down will carry PMI for the whole 30 year length of the loan.   SAVE!  SAVE!  SAVE! for your downpayment and avoid this.

[lys]

This will be implemented starting June 3, 2013.

[kaylie]

This isn't completely accurate. FHA loans to those who put less than 10% down will have lifetime PMI regardless of the loan's term. Those who put at least 10% down will now have to pay PMI for a minimum of 11 years instead of the 5 currently required. If you have good credit you can still do a conventional loan with 5% or more down and not be locked into PMI for all eternity.

ETA: This is the document from HUD that outlines the changes - portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf

[niknik]

Ugh, I'm glad we bought when we did both with our interest rate and this.

[sjh722]

FHA PMI is also more expensive than PMI on a 5 or 10% down conventional.

[munkii]

Feb 21, 2013 9:15:42 GMT -5 kaylie said:

If you have good credit you can still do a conventional loan with 5% or more down and not be locked into PMI for all eternity.

This is the part I hope people pay attention to. Our broker tried to sell, sell, sell us on FHA--"Save your money, you don't need to put that much down! Look at the low, low interest rate!" Um, no thank you. Do the math, people!

[sierramist03]

Sometimes FHA is the only way people will ever be able to Own a home and its their only options maybe because of credit, etc.

[kaylie]

Feb 21, 2013 11:00:00 GMT -5 asdfjkl said:

Wait, how does that make sense?  At some point, your payments should add up to 20% of the value of the home, and once that happens, why do you have to keep paying PMI?

I think the article I read talked about how they were trying to shore up their reserves post-housing bubble. Even though you have 20% in, FHA is still responsible if you default so they want to collect the extra insurance the entire time. It seems like they're trying to make it a product heavily aimed at borrowers with credit issues. With these changes it will be the only reason someone would go with an FHA loan over conventional.

[boiler717]

Feb 21, 2013 11:04:53 GMT -5 kaylie said:

Feb 21, 2013 11:00:00 GMT -5 asdfjkl said:

Wait, how does that make sense?  At some point, your payments should add up to 20% of the value of the home, and once that happens, why do you have to keep paying PMI?

I think the article I read talked about how they were trying to shore up their reserves post-housing bubble. Even though you have 20% in, FHA is still responsible if you default so they want to collect the extra insurance the entire time. It seems like they're trying to make it a product heavily aimed at borrowers with credit issues. With these changes it will be the only reason someone would go with an FHA loan over conventional.

Forgive me if this is a super naive question, but isn't it better to work at increase your credit score and get a conventional loan or put 11% down for a shorter PMI turn? Are people receiving counseling to this?

I feel pretty icky about the government collecting hundreds of dollars from someone once a house has more than a 20% LTV. It seems to be preying on people with low credit scores which got us into the housing mess in the first place.

[boiler717]

Feb 21, 2013 11:55:23 GMT -5 asdfjkl said:

Feb 21, 2013 11:24:26 GMT -5 boiler717 said:

Forgive me if this is a super naive question, but isn't it better to work at increase your credit score and get a conventional loan or put 11% down for a shorter PMI turn? Are people receiving counseling to this?

I feel pretty icky about the government collecting hundreds of dollars from someone once a house has more than a 20% LTV. It seems to be preying on people with low credit scores which got us into the housing mess in the first place.

My opinion on housing purchases is that because there's such a low rate of return (and appreciation) on houses, the least liquidity you can tie up in a house the better for YOU (obviously not necessarily for the bank).  It's better to invest that money in an asset or a stock or a retirement fund or pretty much in a box under your mattress that will make it grow faster and be easier to access.  So that's why I think this is kind of bullshit.  At some point, just as a result of making payments on time, you're going to hit that 20% equity mark.  Or you might use some of your liquidity to make improvements and increase the actual value of the home, which is something the bank should also want.  So I guess my feeling is that if someone is such an incredibly poor credit risk with so few assets that for them to be a "good gamble" for the bank would mean the bank collecting $250 a month right up to their 360th payment, maybe that person should just have to put down 20% or not get a loan.  

So yeah, basically, I think this is bullshit.  

I'm talking about a 5% down conventional loan, that would be my first choice for people, not 20%. I haven't run the numbers, but my gut thought was the an 11% down with 11 years PMI might be better than 3.5% with 30 years PMI, but maybe not. I still think a 5% conventional loan is the best bet though, and I absolutely agree with putting the least amount down possible.  

[sierramist03]

It's not always to do with what they can put down sometimes their are other factors for example my aunt who is a single mother bought a nice house with an FHA loan. Because of her monthly income and credit score she would have never qualified for a conventional loan even with a large percent down. FHA loans allow you to have a higher debt to income ratio.

[boiler717]

So why is my statement bullshit? Why not work with people to improve credit and doing a 5% conventional instead of paying PMI for 30 years?

[ssmjlm]

Feb 21, 2013 12:19:15 GMT -5 sierramist03 said:

It's not always to do with what they can put down sometimes their are other factors for example my aunt who is a single mother bought a nice house with an FHA loan. Because of her monthly income and credit score she would have never qualified for a conventional loan even with a large percent down. FHA loans allow you to have a higher debt to income ratio.

That may be true now, but I believe that FHA loans are going to have higher restrictions starting in 2014.  And not just PMI, there's changes to debt to income ratios being implemented.

[SusanBAnthony]

This is interesting to me. I am inclined to think that anyone who is such a credit risk that PMI is needed for the whole term should not be given a mortgage at all.

We considered a FHA even though we have excellent credit and enough income, because the interest rate was lower. We decided the higher PMI and the more finickiness about little stuff was not worth it. We are doing 5% down conventional, and will try to pay off to 20% within 2 years to get rid of PMI. After that we won't be in a rush to pay it down anymore.

I have no problem with making it harder to get a mortgage (within reason). I think requiring 20% down for everyone is fine, even though we aren't doing it, lol. But FHA mortgages just squick me out.

[lys]

Thanks for the correction Kaylie - I was skimming too quickly.
I am not a fan of putting all of your main assets into the stock market - and have paid off 2 mortgages. We live totaly debt free and keep about 1/3-1/2 of assets in the stock market.
The government lost a good deal of cash in the housing crash --- and the government WILL get their money back one way or another.

[boiler717]

Feb 21, 2013 14:18:08 GMT -5 asdfjkl said:

Feb 21, 2013 12:40:26 GMT -5 boiler717 said:

So why is my statement bullshit? Why not work with people to improve credit and doing a 5% conventional instead of paying PMI for 30 years?

Not your statement.  The whole idea of paying 30 years of PMI is bullshit.

Ahh I see!

[sjh722]

Feb 21, 2013 13:42:50 GMT -5 ssmjlm said:

Feb 21, 2013 12:19:15 GMT -5 sierramist03 said:

It's not always to do with what they can put down sometimes their are other factors for example my aunt who is a single mother bought a nice house with an FHA loan. Because of her monthly income and credit score she would have never qualified for a conventional loan even with a large percent down. FHA loans allow you to have a higher debt to income ratio.

That may be true now, but I believe that FHA loans are going to have higher restrictions starting in 2014.  And not just PMI, there's changes to debt to income ratios being implemented.

The debt:income tightening is a good idea. If you can't meet the debt-to-income ratios (which are generous even on a conventional loan), you shouldn't be buying a house. That's part of the predatory lending/bad buyer decision making combo that got us into this mess in the first place. Lenders know you're going to prioritize your house payment over pretty much anything else and it's based on your gross income. You can't spend money you don't have (i.e. taxes, health insurance, etc that is taken out of your paycheck), leaving you with too little left to make a house payment, save for emergencies, keep up with maintenance, etc. There are people who made/are making it work, but it's scary to have 50% - 60% of your take-home going to PITI.

This is probably not popular opinion in my line of work, but homeownership isn't for everyone and that's okay. There's nothing wrong with renting - it's definitely not "throwing your money away".

I agree that PMI for the life of the loan is bullshit, and I'd much rather see them tighten credit or income guidelines than raise PMI (again, it jumped big time a few years ago too) and try to stick buyers with it for the life of the loan.

[simpsongal]

Our PMI was over $600/month before we did a conventional refi. Brutal. They're really trying to push loans back to the private sector.

[starlily]

We ran the numbers for a FHA & 10% down conventional loan; the difference in PMI was quite substantial, with FHA costing more in the long run. Getting the conventional loan though required jumping through a few more hoops, as my debt ratio was just 2% higher than they'd like (loan had to be in my name only and not consider H's income - long story - plus I own a condo) so I had to apply for an exception.

[kellikans]

Feb 21, 2013 13:53:56 GMT -5 SusanBAnthony said:

This is interesting to me. I am inclined to think that anyone who is such a credit risk that PMI is needed for the whole term should not be given a mortgage at all.

We considered a FHA even though we have excellent credit and enough income, because the interest rate was lower. We decided the higher PMI and the more finickiness about little stuff was not worth it. We are doing 5% down conventional, and will try to pay off to 20% within 2 years to get rid of PMI. After that we won't be in a rush to pay it down anymore.

I have no problem with making it harder to get a mortgage (within reason). I think requiring 20% down for everyone is fine, even though we aren't doing it, lol. But FHA mortgages just squick me out.

I don't agree with requiring 20% down to get a mortgage.  if we put that much down, we would have had to write a check for $132,000.  it would've taken forever to save 20%.  requiring 20% down is one thing when you live in an area where houses are $300k.  its not the same story for HCOL areas.  

but I am hoping that we can refinance again this summer to a conventional loan to get rid of PMI.  hopefully the trends keep going around here so that we can do that. 

[housegeek]

To clarify, if we have a FHA loan now it doesn't affect us right? MIP still drops at 22% of equity or 5 years right?

[karinothing]

Feb 21, 2013 19:41:32 GMT -5 simpsongal said:

Our PMI was over $600/month before we did a conventional refi. Brutal. They're really trying to push loans back to the private sector.

Sheesh! This is why I thank God I found a lender that offers no PMI loans w/10% (the interest rate is higher though, 4.2%).

[kaylie]

Feb 22, 2013 18:14:17 GMT -5 housegeek said:

To clarify, if we have a FHA loan now it doesn't affect us right? MIP still drops at 22% of equity or 5 years right?

Yes, this will only apply to new FHA loans.