In a recent letter to people who hold mortgages, the Department of Housing and Urban Development (HUD) announced significant changes to mortgage insurance premiums for all Federal Housing Administration (FHA) loans. If you haven’t taken advantage of today’s FHA mortgage insurance premiums for either a purchase or refinance, you have only a small window of opportunity left before these government-insured loans become more expensive.
Starting on or after April 9, 2012, both your annual and upfront mortgage insurance premiums will increase for any loan amount up to your county limit. For example, on an annual basis you could see about a 10 percent jump in premiums. Most notably, the FHA is going to collect closer to double the amount of upfront mortgage insurance than it requires now. On June 11, 2012, the annual insurance premium climbs another tick higher if your loan amount exceeds $625,500.
Of course, there are a few limited exceptions. Should you have a 15-year fixed mortgage term or shorter and 22 percent or more equity in the property, you can actually be exempt from the annual insurance premium. Under the same scenario, even if you had less than 22 percent equity in the property, as long as you maintain a fixed loan term of 15 years or shorter, you could end up paying a much lower insurance premium.
It is important that you review all of these changes with your lender. If you are using FHA financing to purchase a home, you need to make sure that your qualifying ratios are not pushed out of the approval range due to the increased insurance premiums. This might easily happen with sensitive loan applications. The last thing you want to do is to make an offer on a home and later discover the terms of your pre-approval letter are no longer valid.
For those of you thinking about refinancing, the FHA offers a streamline program to help reduce your principal and interest payment. It may be processed without an appraisal, and, in some cases, with no credit qualifying either.
If you have an existing FHA-insured loan and a 640 or greater FICO score, you meet some of the basic requirements. The FHA also wants a timely six month payment history and 210 days seasoning on the loan you are trying to refinance.
But to proceed, your lender must determine there is a net tangible benefit as a result of the streamline refinance. The main test is calculating at least a 5 percent reduction of your current principal and interest payment plus the annual mortgage insurance premium. While it is hard enough to navigate through interest rate conditions to pass this test, the imminent rise in FHA insurance premiums ought to complicate matters further.
Chris Salese is a licensed California mortgage banker and equal housing lender. He can be reached at delsurmortgage.com or 265-9006.