New FHA Mortgage Program Changes: What Buyers Need to Know Before April 1

Steve Nimmer, Coldwell Banker Mortgage (912-604-3834 NMLS #: 186680), who is a great source of information, sent me the following:

The Federal Housing Administration has announced several changes to FHA mortgage programs that will begin April 1, 2013. These changes will impact customers who are in the market for or have recently qualified for an FHA loan.

The new changes revolve primarily around increasing mortgage insurance premiums. Before going into more detail, it may help to do a quick review of the two types of mortgage insurance required on the majority of FHA-insured loans:

• An upfront mortgage insurance premium, or UFMIP, which is paid once at loan closing. FHA allows this premium to be financed into the loan.
• A mortgage insurance premium, or MIP, which is paid in equal installments, is part of the mortgage payment.

Increased insurance premiums – and tightened criteria

As noted, the FHA program changes focus on mortgage insurance premium increases, but there are also other factors buyers should be aware of:*

• Annual mortgage insurance premiums (MIP) paid by borrowers on most new FHA loans will increase by 10 basis points, or 0.1 percent; for loans of $625,500 or more, there will be an increase of 5 basis points or 0.05 percent.
• Upfront mortgage insurance premiums will rise to 1.75 percent of loan size.
• Most FHA borrowers will now have to continue paying annual premiums based on the unpaid principal balance for the life of their mortgage loan. (This reverses a policy that automatically cancelled required premium payments after loans reached 78 percent of their original value.)
• It will be more difficult for borrowers with FICO scores below 620 and a debt-to-income ratio higher than 43 percent to qualify for the loans. They will not be eligible for processing through the FHA's automated underwriting system and so will have to be processed manually, with lenders documenting compensating factors such as larger down payments – or a higher level of reserves.

Buyers can still take advantage of the current, lower premiums. The new FHA mortgage insurance rates will apply to most loans that have a case number starting April 1, 2013 or later. Be sure buyers are aware of the latest changes and that they have consulted a mortgage advisor about eligibility or the next steps they may wish to take.

*Source: Inman News, January 2013.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga