Facts about the New FHA Mortgage Insurance Premiums (MIP) Changes

FHA loans offer many advantages over traditional mortgage loans. The down-payment requirement of 3.5 percent is significantly lower than the mortgage industry standard of the 10 to 20 percent needed when buying a home. FHA loans also have very low rates, allow homeowners to refinance without an appraisal, and make the approval process significantly easier than traditional mortgages. The one drawback to FHA loans is the mortgage insurance premium (MIP) requirements. Compared with conventional loans, the FHAs MIP can be costly and cumbersome. With the changes in MIP requirements being instituted in April of 2013, the insurance on FHA loans became even more restrictive.
The FHA is an insurer of mortgages. They are not a direct lender like Freddie Mac and Fannie Mae. The FHA falls under the umbrella of the Federal HUD (Housing and Urban Development) Program. FHA loans are insured by the government in an attempt to allow homeowners better access to mortgage loans. The FHA is required by law to maintain a 2 percent reserve on its Mutual Mortgage Insurance Fund (MMI). The MMI dropped below the 2 percent threshold to 1.44 percent due to the mortgage meltdown and a significant increase in the number of defaulted FHA loans.
In order to restore the minimum 2 percent, and better stabilize their portfolio of loans after the mortgage meltdown, The FHA will be making the following changes to their mortgage insurance premium requirements and credit guidelines effective April 1, 2013.
Increased MIP on most FHA loans
FHA will increase its premiums by 10 basis points or .10 percentage points in an effort to replenish its MMI reserves.

Changes in Cancellation Requirements
The FHA has removed the ability for many mortgage holders to cancel their MIP on loans. It used to be that if your outstanding balance on your loan dropped to 78 percent of the original value, you could cancel the mortgage insurance. MIP will now remain for the life of the loan, unless the original value was below 90 percent, in which case the mortgagee can cancel the MIP after 11 years.

The FHA has removed the ability for many mortgage holders to cancel their MIP on loans. It used to be that if your outstanding balance on your loan dropped to 78 percent of the original value, you could cancel the mortgage insurance. MIP will now remain for the life of the loan, unless the original value was below 90 percent, in which case the mortgagee can cancel the MIP after 11 years.

In addition to the changes to the mortgage insurance premiums, borrowers will be subject to greater scrutiny when applying for FHA loans. Borrowers with a FICO (Fair Isaacs Company) credit score less than 620 will have their maximum debt-to-income (DTI) ratio lowered to 43%. There are additional hurdles for borrowers attempting to obtain an FHA loans. If you are within 3 years of a foreclosure, or seeking a mortgage loan that exceeds $625,000, borrowers will be required to put at least 5 percent down at the time of purchase.

The FHA is tightening its restrictions and qualifications on their loans in an attempt to cover the losses it incurred during the mortgage crisis. They are also attempting to get the Mutual Mortgage Insurance Fund back in line with federal requirements. As a result, borrowers must absorb the higher insurance premiums and more restrictive guidelines. While the FHA deals with the fallout, traditional mortgage lenders have begun lending more freely in recent months. Borrowers are encouraged to shop around for the best product that fits their mortgage needs. If they seek to avoid the increased MIP payments, they can always seek conventional loans as an alternative.

 The author of this article Sam Jones, realises that budget is an issue for students needing student insurance. He says that uSwitch.com offers an easy online interface for obtaining multiple quotes with just one form fill

This article is copyright free.

Share:

Author:

Leave a Reply