January 13, 2012
Borrowers are going to pay more for an FHA loan in 2012. FHA mortgage insurance premiums are going up AGAIN. This change could possibly take an approved loan file straight to the DENIED bin.
The recent, signed legislation to extend the payroll tax deduction means an increase in FHA’s mortgage insurance premium. The FHA (Federal Housing Administration) has 2 charges to the borrower:
- Up Front Mortgage Insurance, which is currently 1% of the loan amount
- Annual Mortgage Insurance, currently at 1.15% and slated to increase to 1.25%
How could this affect you?
It could end in loan denial. Namely, if as a borrower, you are near the limits of allowable debt-to-income ratios. For example, on a $250,000 loan, this increase will add another $26.04 per month in additional mortgage insurance which also gets added into the debt-to-income ratios. This increase couple topple the peak of allowable ratios and result in a denied status on your loan.
What do you do?
We Are All About Solutions!
Two things:
- If you are an FHA buyer, get off the fence, find your home and CLOSE on your loan…now rather than later. Push that spring market today! Heck, even if you do still qualify after the increase, who wants to pay extra mortgage insurance? Pew.
- Convert your financing goals to conventional financing. With as little as 5% down (good credit needed), you can get a loan with NO monthly MI. HUGE advantages:
- No monthly MI means your purchase power just increased dramatically (see illustration below).
- Sellers and banks LOVE conventional offers!
- Many lenders will tell you that there is a rate increase for doing this “flavor” of conventional financing (called single premium financed MI). DON’T LISTEN. You can get the SAME rates as those borrowers paying monthly mortgage insurance. You just need to ask and shop around for it.
Happy House Hunting!
612.363.1106 sherri@iloanhomemortgage.com
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Hi Sherri – Do the increases take effect on January 1? I noticed your post was dated the 13th, so wondering if it hasn’t taken effect yet.
Hi Louann,
HUD and/or FHA has not announced a date at this point…only that the legislation for the increase passed and the increase is eminent. I wouldn’t be surprised if we see a change as early as this spring. Nonetheless, if you are an FHA borrower, it would be in your best interest to close on your loan earlier, rather than later. Who wants to pay extra mortgage insurance, right?
Along with that, the bureacrats were also able to sneek in another FHA change that will decrease the percentage of closing costs that a seller can pay on behalf of the buyer. To learn more about this, go to: http://iloanminnesota.com/2012/01/22/fha-seller-paid-closing-costs-reduction-announced/.
Please feel free to contact me if you have any questions!
612-363-1106
sherri@iloanhomemortgage.com
Low score, uniapd debts and tightened credit guidelines. Be honest “Would you lend someone with your history Money?” No harm in continuing to look. Keep saving for the downpayment. The larger that is, the better you look to lenders. Good Luck +3Was this answer helpful?