FHA Mortgage Insurance Premium Goes Up April 5, 2010

Besides the tax credit deadline looming on April 30, another significant deadline is even closer — beginning April 5, 2010, the FHA Up Front Mortgage Insurance Premium is going from 1.75% up to 2.25%. April 5, 2010 is NEXT MONDAY!

I wrote about the rise in FHA Upfront Mortgage Insurance Premium on January 21, and time is now running out to get under contract before this change happens.

For any case numbers originating on or after April 5, the MIP will be 2.25%. This Friday, April 2, 2010 is Good Friday, so banks are closed.

This means for buyers to get the 1.75% premium, they need to be under contract and have all of their paperwork to their mortgage professional by Thursday, April 1, 2010 at the latest. (No joke!)

An example of what this means is that for a $200,000 loan amount, the current up front mortgage insurance premium to use FHA would be $3,500. As of next Monday, for the same loan it would be $4,500, costing a buyer $1,000 more.

Down the road, there are also expectations of reduced seller concessions and higher downpayment requirements for FHA borrowers. This means to buyers who are considering using FHA to obtain their loan should hurry to get the benefits as they stand currently!

Nine Weeks Left in Homebuyer Tax Credit Extension — Will It Be Extended Again?

A discussion I have been involved with here in the Baltimore area about the crippling snow and the effect on the Baltimore real estate market has people in the real estate world wondering if the homebuyer tax credit may be extended again.

On Monday, the Wall Street Journal wrote an article about the credit, and how lobbyists are gearing up to try to have it extended.

In the northeast, the sheer fact of houses not being able to be shown for the majority of a month due to the snow is a big part of the issue.

Other areas of the country make the point, as recounted in the Wall Street Journal article, that banks often are often taking a long time to approve short sales. I personally have found that this delay creates the issue of buyers who qualify for the credit not considering these homes as options.

It will be interesting to see if it will happen. Washington stated that it would not be extended further, and I can understand if that does not happen. Without the urgency of it ending, the credit cannot do its’ job, which is to help people get into homes.

The other looming deadline we have right now is the upfront Mortgage Insurance Premium for FHA loans, and the fact that that rate is going up from 1.75% to 2.25% for loans whose case numbers are assigned after April 5, 2010. This means that buyers desiring to use FHA financing should be pushing to have a home under contract by the third week in March, giving them about three weeks from now, to ensure their case number is assigned prior to April 5, 2010.

Two very important deadlines are looming, and I will be following how the Baltimore real estate market responds to them.

Baltimore Real Estate Market Third Week of February 2010

As we enter the fourth and final week of February, I am reminded as to where the market was last year at this time versus this year.

I have seen showings become more frequent in the past week and the excitement over spring’s arrival in the next few weeks definitely brings people out to look.

The snow storms we had this month really put a halt to the market, as some homes were inaccessible (all of them for a long period of time) until just recently.

February is not notoriously a great time to sell your house. Often times people wait “until spring” to make sure the snow is over and the buyers are out looking.

This year we have the First Time Homebuyer Tax Credit end looming, and sellers are taking notice and attempting to get their homes on the market. The other driving force we have right now is the April 5, 2010 deadline for FHA to avoid the higher up front mortgage insurance premium.

It appears that tomorrow we will have heavy rains which should melt a lot of snow, and may cause some flooding. These are issues that sellers most likely usually don’t have to handle, and buyers need to be aware that these are highly unusual circumstances.

Many gutters have fallen, and one of my clients, who is making a claim on his gutter system said that his insurance company told him they are declaring the Baltimore area a “disaster area”. This means that roofers are overwhelmed and not available, which means this rain tomorrow and possible snow Thursday could be big problems for many Baltimore homeowners who no longer have their usual defense against water coming into their basements and main levels on their homes.

Sellers have to be aware of what is happening, and be prepared. Buyers need to be understanding and patient, and realize that these homes most likely do not usually let the elements enter!

Hopefully March will bring us much needed warmer weather so Baltimore homebuyers can get out and take advantage of these credits and lower upfront PMI, and sellers can have their homes returned to their usual states.

More FHA Changes to Happen Mid Summer

On January 20, I wrote about the new likely major FHA loan changes that were being announced.

One of those changes is going into effect on April 5, 2010, as I wrote on January 21, with the upfront mortgage insurance premium being raised from 1.75% to 2.25%.

A press release was placed on the hud.gov site on January 20 about the new changes, but was not widely distributed.

It does reiterate that the downpayment will still remain at 3.5%, which is a big relief for homebuyers wishing to use FHA insured loans to buy their homes. It had been proposed that the downpayment be raised to 5% of the sales price of a home.

The major component that FHA homebuyers need to be aware of is that sellers will only be allowed to give 3% in closing cost help to a buyer, rather than the 6% they are currently allowed to give.

From the hud.gov website:

Reduce allowable seller concessions from 6% to 3%

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.

• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

This may take a buyer from being able to buy a home to not being able to afford the closing costs associated with purchasing one.

In 2009, I saw many contracts with 4% in seller concessions, because closing costs in Maryland are fairly high. The minimum in closing costs for buyers is the 3.5% downpayment, plus an additional 4-5% in transfer taxes and costs. What many buyers have been doing is making an offer and asking for help from the seller to cover the majority of that 4-5%. This will no longer be the case, making many buyers possibly short 1-2% to close.

What this means for buyers who wish to use FHA insured financing is that they need to move quickly to avoid the higher upfront PMI and be able to take advantage of the possibility of between 4-6% in closing cost help from sellers who are willing to do so.

Contact me today to get your financing in place with a qualified FHA approved lender so you can take advantage of the FHA regulations as they currently stand!

HUD Temporarily Waives FHA 90 Day Policy to Move Foreclosed Homes

In an attempt to move foreclosed properties more quickly, HUD has temporarily waived the 90-day ownership guideline, making these foreclosed properties available to FHA homebuyers.

RISMedia reports that:

In today’s market, FHA research finds that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

This comes just before FHA’s announcement of their likely fee hike coming down the pike, helping to soften the blow of the new regulations & fees.

Buyers who have been considering foreclosed properties but could not use FHA insured financing can now, which is great news. Hopefully many of these qualifying buyers will get in to these homes with this change before the first FHA fees go up on April 5, 2010.

First New FHA Mortgage Insurance Premium Change to Happen April 5, 2010

Yesterday, I wrote about the major FHA fee changes that could be coming up.

Today, the mortgagee letter went out to FHA approved banks, stating that the upfront mortgage insurance premiums collected will be 2.25% instead of the 1.75% they are now. I would like thank Michael Johnston from Carrollton Mortgage Services, Inc. for sharing the mortgagee letter with me.

The closing costs assistance I discussed yesterday is not addressed in this letter, so I do not know when that may come into play.

This change in the MIP goes into effect for any FHA loans for which the case number is assigned on or after April 5, 2010.

So if you are a qualifying buyer for an FHA loan and want a lower up front mortgage insurance premium of 1.75%, you need to get under contract very soon!

 

To reach Michael Johnston, Assistant Vice President, Carrollton Mortgage Services, Inc.,  E-mail: mjohnston@carrolltonbank.com , Office: 410-561-8477 X 106, Cell: 410-627-1921

FHA Announces Major Changes in Loan Fees

The FHA mortgage, a very popular loan option for buyers, has announced the likelihood of higher fees for borrowers wishing to utilize the government backed loans to buy houses.

The Wall Street Journal broke the news late last night in their article about the FHA fees increasing. Thank you to Dan Plunkett of Prosperity Mortgage for sending the WSJ article above, and making me aware of these possible major changes to FHA financing.

The changes have not gone in effect yet, as it isn’t official, and that date is yet to be announced.

Here are the major changes that will affect FHA loan borrowers:

• Seller contribution to Buyer’s closing costs will be reduced to 3% of the purchase price of the house. (Sellers currently are allowed to contribute up 6%).
• The upfront Mortgage Insurance Premium (MIP) required on all FHA loans will be raised to 2.25% of the loan amount. (It currently sits at 1.75%).
• The monthly Mortgage Insurance Premium (MIP) will also increase, though that amount has not been released yet.

The good news is that the downpayment was left alone at 3.5%, as there were discussions of raising that to 5%, making the loans harder for buyers to utilize, with the inability to get more money from the seller for closing cost help.

If this goes through as planned, this is going to make getting an FHA loan much more difficult for many Americans, because the closing cost help from the seller can make the determination as to whether a buyer has enough cash to close at settlement. I have experienced a number of buyers who have gotten more than 3% in closing cost help from the seller, and this would make the houses unattainable for those buyers.

I am worried about what this may do to the housing economy, as FHA loans have become a very popular program due to the low downpayment option and ability of the seller to contribute a decent % of the purchase price back to the buyer to make the house affordable for them.

I will keep you updated as this develops further.