FHA Mortgage Costs Rising

Why would HUD decide to raise FHA mortgage costs at a time when the economy and the housing sector nationally are struggling so much? Just a few years ago, FHA home loans were considered a financing dinosaur.  FHA loans were nearly considered obsolete because they were time-consuming and more regulated, and sellers were usually not comfortable with FHA financing being written into the sales contract, because they knew at the time that the appraisal requirements and timeline for underwriting would drag out the process for closing the loan. Times have changed, and FHA has automated the FHA home loan process.

Today, an FHA mortgage remains the only low down-payment lending product, requiring just 3.5% from borrowers. Just five years ago, FHA loans had a market share of only 5%.  In 2010, FHA lending accounts for about 30% of all home loan originations nationally. This surge of mortgage loan volumes has increased the pressure on the FHA Mortgage Insurance Fund. FHA is required to maintain this emergency fund of reserves above 2% based on all of its insured mortgages.  This year we saw the reserves fall well below the 2% minimum and HUD has been forced to take drastic steps, like tighten the FHA guidelines.

FHA Mortgage Lending Back in Style

In an effort to preserve the sacred FHA loan program, HUD announced it will be raising its annual mortgage insurance premium from 0.55 % of the mortgage amount to 0.90% (for loan to values higher than 95%) or 0.85% (for LTVs lower than 95 %). This insurance premium hike will go into effect, October 4th, 2010.  In an effort to save face, FHA will be lowering their upfront mortgage insurance to compensate homeowners for their rising monthly payments. This is good news for new homebuyers because the fees are dropped to 1% of the loan amount from 2.25%.  Overall, it looks to add $300 million a month to the insurance fund by taking these actions.

FHA Borrowers to Pay More Monthly

So what does that mean to FHA buyers come October? It means they will be paying more each month.  For example, let’s take a $250,000 purchase. Under the current FHA mortgage insurance framework, the upfront premium would be $5,428 for a total loan amount of $246,678. The monthly mortgage insurance would be $110.57. Take an interest rate of 4.625%, and the principal and interest payment would be $1,268.27. Add the $110.57 and you get $1,378.84.

Under the new FHA requirements, the new upfront amount would be about $2,500 on a FHA mortgage loan amount of $250,000. However, the monthly insurance jumps to $180.94. Take the same interest rate, and the principal and interest payment decreases to $1,252.76. But with the higher premium, that total payment comes in at $1,433.70, an increase of almost $55 a month.  To a borrower who is just barely qualifying, that can have an effect. It also puts into play taking another look at private mortgage insurance as an alternative for the borrower.  These types of adjustments shouldn’t be surprising as FHA tries to adjust to the marketplace. It recently released its quarterly report to Congress, and it shows just how much FHA has become a part of the mainstream when it comes to mortgage lending.

Assumable Loans with FHA

Posted on May 7, 2010 by admin 
Filed under FHA Articles, FHA Credit, FHA Guidelines, FHA news, FHA requirements · Tagged:

Did you know that FHA mortgage loans are  assumable? This means that if you sell your house, the buyers could actually take over your existing FHA mortgage. Using the “assumable” function with FHA loans extends some leverage to a seller that could potentially pass on a FHA mortgage with an interest rate that is locked well below the market.

According to FHA requirements, home buyers may qualify to assume the seller’s FHA mortgage loan. This is an attractive benefit if FHA rates are higher than your existing FHA loan at the time you’re selling your home.  FHA mortgage lending programs provide an important service to buyers, homeowners, and housing markets. FHA has been in the news a lot lately because HUD is looking for new opportunities to  rebuild the FHA mortgage reserves.

FHA Loan Modification Guidelines

Check out the latest FHA mortgage guidelines and FHA requirements for their new loan modification efforts for conventional home loans. FHASecure was the first FHA home loan program created to provide mortgage relief for delinquent homeowner who were not able to qualify for a conforming mortgage refinance loan. 

o    FHA announced their new mortgage modification plans to aid distressed FHA borrowers.

o    The FHA home loan is refinanced and 30% of the FHA loan is placed into an interest-free second mortgage that must be paid back when the property is sold or refinanced.

o    Homeowners must qualify with ratios of 31/55. The 1st ratio says that up to 31% of the individual’s monthly income can be used for housing costs and that 55% can be used for housing costs plus other monthly debts.

o    The borrowers must be able to document a hardship (ie. an income change, loss of employment etc.) and HUD must be considered as a long term hardship.   

Read the original article online > FHA Loan Modification Program.