FHA announced sweeping changes to mortgage insurance yesterday. For all FHA case numbers assigned on or after April 1, 2013, FHA will increase the monthly premium from 1.25% to 1.35%. While this change may seem small, keep in mind that mortgage insurance was at .55% just a little over 2 years ago. This is the third increase in the last 3 years.
To put that in perspective, monthly mortgage insurance on a $200,000 loan went from $90/month 3 years ago to about $225/month with this change. This difference affects what your buyer qualifies for. In order to prevent your buyer from paying this new monthly mortgage insurance amount, they must have their FHA case number obtained prior to April 1, 2013. This means they should be under contract about a week prior to this.
In addition to this monthly change, FHA has also announced that for buyers putting down less than 10% (which most buyers do), starting with case numbers assigned on or after June 3, 2013, borrowers will pay monthly mortgage insurance for the entire duration of the loan. FHA's current guideline requires borrowers to pay mortgage insurance for no less than 5 years and they must reach a 78% loan-to-value, then FHA will automatically drop the monthly mortgage insurance. Starting on June 3rd, FHA will no longer drop that mortgage insurance and force borrowers to pay this for the life of the loan. This adds up to tens of thousands of dollars over the life of the loan.
If you or anyone you know is looking to purchase soon and plans to use FHA financing, you/ they should act now as this change will limit purchasing power. Unfortunately,this will also negatively affect sellers since 95% of the market is comprised of FHA loans. If you are planning on selling this year, you should get your home prepped for the market as soon as possible so you have a larger buyer pool that will not be affected by these FHA changes.
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