FHA Mortgage Insurance soon may be for life of loan
Minneapolis, MN: The Federal Housing Administration (FHA) has announced that sometime in 2013, all new FHA insured mortgage loans will now require the monthly mortgage insurance be on the loan for the entire LIFE OF LOAN.
The proposed rule is NOT official — Yet.
Currently, FHA mortgage insurance premiums drop from FHA insured loans once the loan balance reaches 78% of the original balance and the home owner has had the loan at least 5-years.
FHA has not giving an official starting date yet, but it will be on all NEW loans going forward, and WILL NOT effect existing FHA insured home loans. Any existing FHA insured loan will still be able to drop mortgage insurance (PMI).
Most NEW FHA insured loans are just 3.5% down payment – therefore the mortgage insurance is currently 1.25% of the loan amount monthly. FHA has also announced that in 2013, the cost of the insurance will increase to 1.35% monthly.
As an example, on a $100,000 FHA insured loan, the homeowner will pay $112.50 in mortgage insurance every month for the entire 30-year loan.
For those capable, meeting both the higher credit score and underwriting guidelines, moving to a conventional loan with 5% down is going to result in very significant savings over an FHA mortgage loan going forward.
FHA has indicated they are making this move to increase their capital reserves after suffering major losses due to foreclosures and the mortgage market meltdown. The vast majority of the losses are attributed to loans written from 2007 – 2009 as lenders moved marginal home buyers into FHA loans after sub-prime loans disappeared from the market in 2007.
FHA home mortgage loans will still remain a great option for many buyers, but clearly FHA has indicated they do not want to be the loan for everyone.