About The Real Estate Group

The Real Estate Group (TREG) "Partners in Excellence"

The mission of The Real Estate Group, LLC is to be Hampton Roads finest provider of real estate services. Our goal is to create a company that provides absolutely the best service for our customers by fostering an environment of teamwork and a common vision. The Real Estate Group, LLC consists of an accomplished team of skilled professionals who take pride in their work and their company. We work hard to go beyond the expectations of our customers, agents, and employees.

FHA Changes Coming April 1st

You know the old saying “April showers bring May flowers”?  

Well, May will still bring flowers; however the showers will come in the way of a flood of changes concerning FHA mortgage insurance premiums.  The majority of my career has been spent working with first time homebuyers and thus FHA has always been my go to product. Low down payment, flexible credit requirements and an all around safe product for buyers has made it quite appealing. So what is changing?

As of April 1st, 2013 we are going to see a significant overhaul in how the private mortgage insurance is structured for buyers using an FHA product. The majority of consumers currently use FHA to take advantage of the 3.5% down payment which leaves them paying a monthly mortgage insurance premium (MIP) of 1.25% or roughly $224.15 per month on a sales price of $225,000. While the monthly mortgage insurance premium of 1.25% is going to rise to 1.35% on April 1st, this isn’t the biggest cause for concern. Using the same sales price of $225,000, the monthly MIP payment will only be $20.11 higher per month. It’s how long home buyers must keep the MI that is the flood I referred to earlier.  The following explanation below details the changes and was taken from an article in Mortgage News Daily.

  • FHA will reverse its existing policy of cancelling MIP on loans when the outstanding principal balances reached 78 percent of the original balance. Because FHA remains obligated to insure 100 percent of the outstanding loan balance for the life of the loan, homeowners will now be required to maintain principal payments over that period as well. FHA’s Office of Risk Management and Regulatory Affairs estimates that the MMI Fund has foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy.

 

While the proposed changes are not exactly a deal breaker for most consumers, it will certainly have people questioning whether or not they want to pay that extra MIP charge for the entirety of the loan. That being said, there are occurrences where a buyer is not at that 96.5% loan to value and they decide to put more money down. The length of time they have to keep that monthly MIP all depends on the down payment. The chart below helps illustrate that.

 

TERM LOAN TO VALUE % PREVIOUS MIP NEW MIP
LESS THAN 15 YEARS LESS THAN 78% NO ANNUAL MIP 11 YEARS
LESS THAN 15 YEARS 78%-90% CANCELLED AT 78% 11 YEARS
LESS THAN 15 YEARS MORE THAN 90% CANCELLED AY 78% LIFE OF THE LOAN
MORE THAN 15 YRS UNDER 78% 5 YEARS 11 YEARS
MORE THAN 15 YRS 78%-90% CAN. AT 78% & 5 YRS 11 YEARS
MORE THAN 15 YRS MORE THAN 90% 78% AND 5 YEARS LIFE OF THE LOAN

 

We are using this as an opportunity to educate our customers on all of the loan products that are available to them.  At the end of the day, it is all about comfort with payments, especially for those of us writing that check. Please take a look through the two articles below that detail more of the changes and what we can expect in the future. As always, if you ever have any questions, please don’t hesitate to call anyone on our team. We are always here to help!

http://www.mortgagenewsdaily.com/01302013_fha_mmi_fund.asp

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-010

About The Real Estate Group

The Real Estate Group (TREG) "Partners in Excellence"

The mission of The Real Estate Group, LLC is to be Hampton Roads finest provider of real estate services. Our goal is to create a company that provides absolutely the best service for our customers by fostering an environment of teamwork and a common vision. The Real Estate Group, LLC consists of an accomplished team of skilled professionals who take pride in their work and their company. We work hard to go beyond the expectations of our customers, agents, and employees.