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Big Changes Coming To Housing Finance?

In the next few months federal policy makers will weigh wether there can be too much of a good thing when it come the helping families finance the American Dream. Learn more here from USAToday.com.

FHA Likely To Increase Annual Mortgage Insurance Premium

Last week FHA Commissioner Stevens announced changes to both the Up Front and Annual Mortgage Insurance Premiums charged on FHA loans (letter attached).  The specific changes and their impact are as follows:

1)      The Up Front Mortgage Insurance Premium (“UFMIP”) declines from 2.25% to 1.00%.

In a FHA transaction the UFMIP is typically financed and therefore any reduction in the UFMIP will benefit the borrower from a equity standpoint since the premium amount financed will be lower.

2)      The Annual Mortgage Insurance Premium increases from .55% to .85% or .90%. (to be finalized)

The Annual Mortgage Insurance Premium is expressed as an annual rate and is collected monthly with the mortgage payment.  The dollar amount of Annual Mortgage Insurance Premium is also factored into the total payment when qualifying the borrower.  The increase in the Annual Mortgage Insurance Premium will increase the total monthly cost of the loan and may impact the ability for some borrowers to qualify for a loan due to housing and or total payment ratios exceeding allowable guidelines.

It is important to note that the increase in the Annual Mortgage Insurance Premium will have an effect similar to an increase in interest rates of between .375% to .500%.

The above changes will go into effect for loans with FHA Case Numbers ordered on or after September 7, 2010.  (Note: FHA Case Numbers can only be ordered once a property has been identified).  It is important to understand that if you are looking to buy using FHA financing how the above changes will impact both the initial and ongoing costs and, in some cases, the borrower’s ability to qualify for FHA financing.

More information here at SmartMoney.com.

UPDATE: FHA announced that it will be delaying the rollout of the new MIP changes from September 7, 2010 to October 4, 2010