Major changes go into affect on the FHA loan program on Monday July 14, 2008. These changes are very significant and will impact the affordability of these loans for many borrowers, especially those will less than stellar credit who can’t put 5% down. Basically, almost everybody in todays market.
Essentially, the Upfront Mortgage Insurance Premium (UFMIP)and monthly Mortgage Insurance IMI) will now be risk based. Even though the borrower has the option to pay UFMIP in cash upfront, it is typically financed into the loan. Bear in mind that UFMIP is not part of the regular closing costs. FHA has always charged a flat upfront mortgage insurance premium for every borrower regardless of credit risk. Until last week UFMIP on the 30 year fixed FHA loan was at 1.5%. The monthly mortgage insurance payment has also always been fixed at 0.5% for the 30 Year loan. These percentages will now change effective Monday.
UFMIP will now be charged on a risk basis, i.e., based on your credit score. It will range from 1.25% for lower-risk borrowers to 2.25% for riskier borrowers. In dollar terms this means that on a $200,000 loan UFMIP can range from $2,500 to $4,500. Remember this is on top of the closing costs and down payment already due. Since this can be financed into the loan, your final loan amount will reflect this cost. Having poor credit will now be expensive even on FHA loans.
Monthly mortgage insurance will vary from 0.5% and 0.55% and is determined by the loan to value. If you are putting less than 5% down than its set to 0.55% but if you’re putting more than 5% down it will be 0.5%. Monthly mortgage insurance is calculated by multiplying the percentage to the loan amount and dividing by twelve. So on a $200,000 loan and a MI rate of 0.55% your monthly mortgage insurance payment is $83.34.
First time home buyers who fall in the hefty 2.25% UFMIP bracket do have a way to obtain a slight reduction to UFMIP. If you are borrowing more than 95% of the purchase price (loan to value) and your credit score is below 559 then you may be eligible for a reduction in your UFMIP by 0.25% - so it would be 2.00%. However, you need to complete a HUD-approved pre-purchase counseling session. FHA will only provide the discount after you have successfully completed the course and will ask for a certificate of completion.
Additional Reading on FHA: Is the FHA Loan Program Right For Me?
Relevant FHA Down Payment Assistance related posts on other blogs:
Arizona Republic Article on DPA
Dear HUD, Stop Being a Bully
Real Estate Road Signs - “Buy A House for $500 Down”
Down Payment Assistance Programs
Welcome to the Arizona Mortgage Guru blog, a great resource for all your home financing needs. If you're new here and like the content, you can subscribe to my RSS feed to get regular updates on all things related to mortgages. Thanks for visiting.
Summary of Recent Changes in the FHA Loan Program
FHA’s Upfront Mortgage Insurance Premium and Monthly MI
FHA Modernization Act Passes in the US Senate
Related posts brought to you by Yet Another Related Posts Plugin.
on Jul 14th, 2008 at 6:38 am
[...] friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front [...]
on Jul 14th, 2008 at 2:27 pm
Another way focussing just on the price tag of a home can cost you…
We are fascinated with the price tag
Sometimes our obsession razor sharp focus on the price tag causes us to overlook other factors that contribute to the all-important bottom line. Marketers have been using price tags to get over on consumers for ages…
on Jul 17th, 2008 at 5:48 am
[...] loan was at 1.5%. The monthly mortgage insurance payment has also always been … More here: FHA Mortgage Insurance Rates Now Risk Based Read [...]
on Jul 28th, 2008 at 11:07 am
Yup. The FHA Mortgage Insurance Rates should be risk based. Simple economic principle. The higher the probability the loans will default, higher interest should be paid. If we don’t set higher rates to people with low credit, why would any body grant loans to these people.
The real estate is in a bubble right now. Market prices are really low. Low demand for houses and real estate in the U.S., Europe and Canada. But market prices may not be equal to actual value since we just have low investor confidence right now. I suggest that people with investment capacity should invest in Toronto condos or in other low-price real estate right now.
on Jul 30th, 2008 at 8:06 am
[...] friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front [...]
on Jul 31st, 2008 at 2:31 pm
[...] mortgage such as prepayment penalties. Additionally, the old lender is being asked to pay the FHA up-front mortgage insurance premium of the principle balance (you can see why they will be very careful on who they approve). Once all [...]
on Aug 16th, 2008 at 2:25 pm
[...] of the Upfront Mortgage Insurance Premium: HUD had recently made the FHA Upfront mortgage insurance risk-based. Meaning you paid more if you had worse credit. Now with the new bill H.R. 3221, there is a one [...]
on Aug 31st, 2008 at 7:28 pm
[...] friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front [...]
on Sep 13th, 2008 at 9:50 am
[...] friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front [...]
on Sep 15th, 2008 at 8:58 am
[...] friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front [...]
on Dec 2nd, 2008 at 1:52 pm
I think these new rules are great. being an investor of properties, I like to see a tighter structure for financing, but still allows bad credit scores to qualify. At least there is an option now
on Dec 30th, 2008 at 1:08 pm
[...] FHA Mortgage Insurance Rates Now Higher If Your Credit is Bad (AZ Mortgage Guru) [...]
on Jan 4th, 2009 at 5:44 pm
[...] First time buyers often combine an FHA loan with a Down Payment Assistance program. These allow the seller to contribute to the buyer’s down payment. You can read all about options for first time and cash-poor buyers here: http://northphoenixagent.wordpress.com/category/first-time-homebuyer/ and get some up to the minute advice on FHA loan program changes at The Arizona Mortgage Guru’s bl…. [...]