by David Hughes
on Wednesday, September 29th, 2010 at 9:50am.
FHA Changes effective October 4, 2010: What's it really mean to the average buyer?
The good: FHA has maintained a miniumum 3.5% down payment.
More Good:The up front mortgage insurance premium (ufmip) has been reduced from 2.25% of your loan amount down to 1%. This amount is not actually collected upfront, but rather financed back into your loan. The lower this is, the lower your final loan amount is.
The Bad: The monthly mortgage insurance, or annual premium as FHA calls them is going from .55% to .90% on all loans that are for 95% or more of the sale price/value, and from .50% to .85% for all loans less than 95% of the sales price/value. So this monthly premium is almost doubling.
Simply put, for a buyer purchasing a $100,000 home with an FHA loan and putting the minimum 3.5% down the changes look like this:
Previous UFMIP: $2,171.25 for a final loan amount of $98,671 ($96,500 base loan= $2,171.25 UFMIP)
New UFMIP: $965.00 for a final loan amount of $97,465 ($96,500 base loan amount + $965 UFMIP)
Previous monthly mortgage insurance: $44/ month
New montly mortgage insurance: $72/ month
So the real question is what's the total impact to the bottom line, or monthly payment? On one hand, the final loan amount which your principal and interest is based on is going down. But on the other hand, the monthly mortgage insurance is nealy doubling.
Previously, your total mortgage payment (excluding taxes and hazard insurance) on the $100,000 house would have been $537 based on a rate of 4.375%. With the new premiums, the total payment on that same $100,000 would be $559. So we're looking at about a $22 increase in payment for every $100,000 in sale price.
All said, it could have been a lot worse from a buyer's prospective. There had been talk that FHA was going to be increasing the minimum payment to 5%. Many might think that would have been a good thing since if forces buyers to have more "skin in the game" and that buyers would be less likely to walk away if they had more money invested. These days, I personally don't know how much truth there is in that since I've seen people walk away from homes that they'd invested over $100,000 in. That's a discussion for a different day though.
These changes are what they are. I'll work with them, educate buyers about them and keep trying to get more people into homes.
I would like to thank Stephanie Hanna of Academy Mortgage for doing the research on these changes and keeping the Dave Hughes Reno Real Estate Team up to date on the latest in Mortgage news. You can call Stephanie for all your mortgage needs at 775-762-9114.