Insurance

On January 21, 2010 – HUD(Housing and Urban Development) released a letter stating that all FHA loans will have increased mortgage insurance. The new FHA Mortgage insurance requirements are as follows:

• Up front FHA mortgage insurance premium increases from around 1.75% to 2.25%.
• These changes go into effect for Case Numbers created after April 5, 2010 (Though you may have applied for a FHA loan prior to this date, a case number is not always assigned). So at least there is a few months of breathing room.

What does these changes to FHA mean in layman’s terms? As a quick review, FHA loans have two types of mortgage insurance. FHA up front mortgage insurance is calculated as a percentage of the loan amount, and is typically financed a.k.a. added to the loan amount as a one-time event. This is why on FHA loans, though a downpayment was made the total loan amount is higher than the actual loan amount. FHA monthly mortgage insurance is a percentage of the loan amount as well, but it is calculated on an annual basis and collected on a monthly basis with each mortgage payment. The average person may not be aware that FHA mortgage insurance is mandatory on all loans no matter how large the down payment.

Let’s look at an example of the FHA MI changes for 2010.

Prior to April 5, 2010:

Purchase price: $200,000

Down Payment(3.5%):$7,000

New loan $193,000

1.75% FHA up front MI: $3377.50

New total FHA loan: $196377.50

After April 5, 2010:

Purchase price: $200,000

Down Payment(3.5%):$7,000

New loan $193,000

1.75% FHA up front MI: $3377.50

New total FHA loan: $196377.50

Here’s the link to HUD for the Mortgagee letter detailing this new increase in FHA mortgage insurance premiums.

More FHA MIP resources available at FHA.gov (aka HUD.gov)

Our analysis is that these increases in FHA MIP are due to the recent default rate spike in FHA loans- they are scrambling to keep capital up. We’ll cover this in our next post.

There is mortgage insurance now available for first time buyers through the California Association of Realtors. This insurance is FREE for the first year. The qualifications are as follows:

• must be a first time buyer (have not owned a home in the last 3 years)
• open escrow after April 2nd, 2009
• must be represented by a California Realtor in the transaction and you must provide documentation to prove this

• you (and all other co-buyers on the Property Purchase Contract) must own no other real property during

  the escrow period on the Property Purchase Contract, whether as a sole owner or jointly;

• you have not previously received an Insurance Policy from Housing Affordability Fund; and

• you must meet all of the eligibility requirements set forth by the insurance carrier to receive an Insurance Policy.

The great thing about this program is that there are no income limits! For the full application, please click here.

If I can help anyone you know with purchasing a home and taking advantage of all the opportunities this market has to offer, please let me know.