Nashville Mortgage News- FHA Loans About to Get More Expensive

Nashville Mortgage News- FHA Loans About to Get More Expensive

With the passing of H.R. 5981 and the resulting Public Law 111-229, FHA was given authority to change the amount charged to borrowers for both the Up Front and the Annual premiums. These changes as outlined in Mortgagee Letter 2010-28, are effective for all case numbers assigned on or after October 4th, 2010.

Here are the 6 things you need to know about these changes:

1. The Up Front premium is now 1.0 % for all standard FHA loan programs (this is compared to the current 2.25% premium; it sounds good on the surface, but the impact isn’t huge because the premium is spread out over 30 years typically)

2. The Annual premium is now .90% for LTVs GREATER than 95% on 30 year FHA loans (this is a huge 64% increase over the current monthly mortgage insurance amount of .55%. This one is a zinger, because if you take an average 30 year fixed FHA loan of $150,000, your monthly mortgage insurance payment now jumps from $68.75/mo to $112.50/mo, a $43.75/mo increase!!!)

3. The Annual premium is now .85% for LTVs EQUAL to or LESS than 95% on 30 year FHA loans (the current amount is .55%, so this is a 70% increase in the monthly premium!)

4. The Annual premium is now .25% for LTVs GREATER than 90% on 15 year FHA loans (surprisingly no change, but most FHA loans are 30 fixed anyway)

5. The Annual premium is now .00% for LTVs EQUAL to or LESS than 90% on 15 year loans (no change)

6. These premiums apply to purchases, regular refinances and streamlines

Please note that this new law also gives FHA the authority to raise the Annual premium at will up to 1.5% for LTVs at or below 95% and 1.55% for LTVs more than 95%. Guess what? If they CAN do it, they surely will. How are we ever going to get out of this current housing mess now that HUD has just significantly raised the borrowing costs of getting an FHA loan, and pave the way for future cost increases? FHA now represents about half of all the new loans originated today, so you better believe this will be a drag on the recovery, to say the least.  

My advice: if you are currently looking to buy a home and are in need of FHA financing and a Nashville mortgage, you better find it before the end of September and get your mortgage application approved, because after October 4, your loan payments are going up!