Posted by: Larry Stevens | September 9, 2010

Home Buyers: Changes to FHA Coming in October

Keeping Idaho home buyers informed of changes in loan structures and how they might impact them is just a small part of the Boise Realtor services I offer. Through this Boise Real Estate blog it is my goal to educate the home buying community in Boise in order to help make them more informed regarding upcoming changes that might effect them in their home buying process.

FHA Decreases Up Front MI  Premium and Increases Monthly Premium

In  hopes to raise critical funds to boost its falling capital, the FHA  will be raising annual fees on all new case numbers effective October 4, 2010. Over the last year, FHA loan volume has risen to account for over 25% of all purchases and about 20% of refinances. Sadly, as it’s volume increased, so has the agency’s default rate, which has reduced cash reserves to below the level required by law. Raising the borrower’s annual fees is one way to recoup these losses without asking taxpayers to subsidize the agency.

The Numbers

Up Front (financed) MI will decrease from 2.25% to 1%

What does this mean to home buyers?

This decrease means that all FHA Case Numbers ordered on or after October 4 will be charged a 1% MIP.

  • Buyers won’t need to finance as much up front.
  • The buyer is in a better equity position at the start of the loan.

Monthly (renewal) MI will increase .85 -.90% annually based on LTV

How does this effect home buyers?

  • An LTV of 95.01% and above monthly MIP will be .90% off base loan amount.
  • An LTV of 95% and below monthly MIP will be .85% off base loan amount.

Based on curren rates a borrower’s payment will be increased approximately $22 dollars per month per $100K of the loan amount, which should hopefully only have a nominal impact on a borrower’s ability to qualify. If rates or prices climb in the future, the MIP increase could have a more significant impact.(but I guess they’ll jump off that bridge if they get to it)

Although the Senate approved raising the annual fee from 0.55 percent to a cap of 1.5 percent, the agency has settled on a much lower fee structure of 0.85 percent for new borrowers who have 5% or more equity and 0.90% for those with less than 5%  equity. Based on a typical loan of $250,000,
borrowers could pay an average of $71 more per month on new loans — this fee increase will not apply to current loan holders.
To offset the impact to borrowers, the upfront FHA fee will be reduced from the current 2.25% to 1.0%.

The up front fees can be paid at closing or rolled into the loan. You may want to discuss these changes with your Boise Realtor as it may influence the timing of their purchase. Rates are still low and home prices have never been better – find homes in Boise or anywhere in Idaho that fit your needs today! My Boise Realtor website has a wealth of real estate information for home buyers and home sellers in Idaho – and the fastest real estate searches online!

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