Starting sometime later this year, the monthly cost to carry an FHA-insured mortgage is expected to rise for home buyers in California’s Inland Empire.
In a near-unanimous vote, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers to 1.55%. Ouch.
Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12. The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent, among other details of the bill.
Despite the ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans. So your elected officials are chooisng to charge more then what HUD is suggesting…yeah!
In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:
- Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
- Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
- Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
An increase in monthly mortgage insurance premiums will reduce home affordability for buyers in Riverside, Corona, Ontario, Chino, Temecula/Murrieta/Menifee, San Bernardino and strain household budgets. Since this will reduce how much buyers can qualify for, this means fewer buyers and more downward pressure on home values.
Because higher monthly insurance premiums are expected to pad the FHA coffers sufficiently, the FHA has said it plans to reduce its Upfront Mortgage Insurance Premium paid at closing from 2.25 percent down to 1.000 percent. On the same $200,000 mortgage, a move like that would reduces ‘closing costs’ by $2,500 but still won’t have much impact because the UFMIP is 99.9% of the time financed into the loan amount!
How Much will this change reduce your buying power? This will impact buyers who are trying to purchase a home at their maximum approval amount. For example: Lets assume a buyer is approved for a $207,254 purchase price, w/ 3.5% down, resulting in a $200,000 mortgage under the curent MIP of .55% (and their DTI is 55%). With the new 1.55% MIP and 1.0% UFMIP, the buyers new max loan amount will be approximately $181,420 (purchase price of $188,000)……..a drop in $19,254 in purchase price!
The bill awaits twin legislation passing through the Senate and final approval into law by President Obama, but considering the House’s lopsided vote Thursday, it could happen even sooner. If you’re planning to buy or refinance a home using an FHA mortgage, you may find that waiting to take the next step could be a costly one, long-term.
If you are confused about the difference between the FHA Monthly Mortgage Insurance premium and Upfront Mortgage Insurance Premium is, or want to find out what your maximum purchase price qualfying amunt is, call me @ (951) 215-6119. I’m here to help.
