Thursday, April 5, 2012

FHA Loans, How they Work and How to Possibly Avoid Higher Costs If You Act by April 9th

How To Work The System : Avoid Paying The FHA’s New Mortgage Insurance Premium Schedule

FHA Mortgage Insurance Premiums rising April 9 2012The FHA is raising its mortgage insurance premiums Monday, April 9, 2012. All new applicants for an FHA mortgage are subject to the new costs. Existing FHA-backed homeowners, however, are exempt.

Still shopping for a loan and want to make yourself exempt, too? There's a trick for that. Read on.

A Lesson In FHA Mortgages : How They Work

The loans are colloquially called "FHA mortgages" but the Federal Housing Administration (FHA) doesn't really "make" mortgages. Rather, it insures them for lenders that do. A better name for FHA mortgages would be "FHA-insured mortgages" because it more accurately reflects the relationship between the FHA and the banks that underwrite such loans.

The FHA is an insurer of mortgages.

It follows, then, that the FHA charges for its insurance -- just like an auto-insurer or life insurer would. And also like an auto insurer or life insurer, the more risk the applicant represents to the insurer, the higher the premiums of the policy.

Unfortunately, the FHA is realizing that its premiums have been too low for the past few years. As a group, the FHA's losses have exceeded the reserves it's set aside to cover them. So, beginning April 9, 2012, for the fourth time in 3 years, the FHA will raise its mortgage insurance premiums.

Click here get FHA mortgage rates.
Summarizing April 9, 2012 FHA MIP Changes

FHA mortgage insurance is paid in two parts and each part is rising in cost.

The first part is called "Upfront Mortgage Insurance Premium". It's sometimes abbreviated as UFMIP and is typically added to your loan balance at the time of closing. In this way, upfront MIP is paid using home equity as opposed to with cash.

Beginning April 9, 2012, FHA upfront mortgage insurance premiums will rise to 1.75% of your loan size.

Currently, FHA upfront MIP is equal to 1 percent of your loan size such that, for a Virginia homeowner borrowing $300,000 on an FHA-backed loan, the upfront mortgage insurance cost will rise to $5,250 from $3,000 -- a 75% increase.

The changes to the FHA's second type of mortgage insurance -- annual mortgage insurance -- are less extreme. Annual mortgage insurance premiums are rising by 0.10% across the board for all FHA loan products and loan types. This amounts to $8.33 per month per $100,000 borrowed.

15-year FHA fixed rate mortgages with loan-to-values of 78% or less remain exempt from annual mortgage insurance.
Click here for an FHA mortgage rate quote.
Pro Tip : Exempt Yourself Permanently From Higher FHA MIP

The important part of the new FHA mortgage insurance rates is that they only apply to new loans registered on, or after, April 9, 2012. Loans registered prior to April 9, 2012 -- including loans already in-process and/or funded -- are 100% exempt from the changes.

The key word is "register".

To register an FHA loan simply means to have an FHA Case Number assigned to it. You don't have to lock a mortgage rate and you don't even have to choose a particular lender to work with. You just need an FHA Case Number and to get that, you just need a name, social security number, property address and a few other small details.

In other words, you can lock in to the old FHA mortgage insurance premium schedule without actually locking in to an FHA mortgage rate itself. All you need is an FHA Case Number. To get that, talk to your loan officer.

Click here get FHA mortgage rates.
Get Your FHA Case Number Today

If you're shopping for a home today and have settled on a property with reasonable certainty; or, are in the throes of shopping and comparing lenders; or, are even just thinking about refinancing your FHA mortgage, get your FHA Case Number assigned today. It's simple, it's safe and it protects you from paying more to the FHA in the future.

Get just started with a rate quote. You must get your FHA Case Number before Monday to lock yourself in.

Dan Green
About the Author

Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan at dan.green@waterstonemortgage.com to get a free, no-obligation rate quote.

You can also find Dan on Twitter and Google+.

No comments:

Post a Comment