CB pic for siteIn case you haven’t already heard the news, the U.S. Department of Housing and Urban Development (HUD) made some significant changes this month that affect FHA loans.

HUD released a Mortgagee Letter on Wednesday detailing changes to FHA’s Mortgage Insurance Premiums.  According to the letter, these changes will apply to all FHA loans with case numbers assigned on or after October 4, 2010.

The annual insurance premium, currently at .50% (to .55%), will be raised to .85% (to .90%).  The five percent variables are based on loan-to-value ratios above or below 95%.  The upfront insurance premium however, will go from 2.25% down to 1%.  For those of you that prefer the language of Basis Points (BPS) to percentages, 1% is equal to 100 BPS.

Enough of the mortgage lingo.  So what does all of this mean to the consumer? Well, it could be a lot actually.

PRE-October 4, 2010

Purchase Price:  $200,000

Down Payment:  $7,000 (3.5%)

Interest Rate:  4.5%

Upfront Mortgage Insurance Premium: $4,343

Principal, interest and mortgage insurance payment:  $1,088.37

POST-October 4, 2010

Purchase Price:  $200,000

Down Payment:  $7,000 (3.5)

Interest Rate:  4.5%

Upfront Mortgage Insurance Premium: $1,930

Loan Amount: $194,930

Principal, interest and mortgage insurance payment:  $1,132.43

As you can see from the example, the payment would end up being more than $44 per month higher. To put that in perspective, if your buyer is tight on his or her debt ratios, that “pre-approval” may no longer be valid.  Depending on the price, their approved loan amount could be lowered by $10,000!

Fence sitting buyers: time to jump off that fence!  Especially if the loan is an FHA loan.  Even if it’s not an FHA loan, this industry is continuing to  change on a daily basis.  You never know what tomorrow may bring.  What we do know is that NOW is a great time to take advantage of 40-year low interest rates as well as phenomenal deals on homes.

Should you have any questions about how these changes will affect you or the mortgage company currently holding your mortgage, contact Craig Berry, Atlanta’s #1 Mortgage Professional.

22 thoughts on “Changes to FHA Insurance Premiums

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