Many buyers rely on FHA financing when purchasing a home. It is a great financing alternative when buyers do not have 20% to invest as a down payment, as required with conventional loans. FHA financing has been the answer for buyers who have relatively decent credit, little or no funds for down payment, and who still desire a fixed rate mortgage. Unfortunately, due to the losses FHA has suffered from the huge amount of foreclosed homes with FHA backed financing, FHA has announced more changes to the FHA home loan program in efforts to increase and strengthen the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund.
Per the Mortgagee Letter 2013-04 (dated January 31, 2013)
-FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages (increase another .10%)
-FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan. Commencing in 2001, FHA cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance. FHA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled.
These changes will increase buyer's monthly payment and the total amount to pay off the FHA backed loan. Due to increase of monthly mortgage insurance premium, it may decrease the amount of buyer's maximum purchase price (debt to income ratio considered).
Effective date, of both of these changes, will be for all FHA case numbers issues on or after April 1, 2013. So if you are a buyer, considering purchasing in 2013 using FHA financing, you could keep some money in your pocket over the years if you act now. You would have to be under contract to purchase a home (and lender assigned your file a FHA case number for that home purchase) prior to the effective date, April 1, 2013. Feel free to contact me if you are ready to begin your home search or if you have any questions!
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