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Alert: FHA Loan Cost Increase October 4

 

FHA Loan Fee Increases: Hundreds Per Month For Borrowers
Effective for FHA loans October 4, 2010 or later, FHA mortgage insurance (MI) will be increasing on new loans—existing FHA borrowers are unaffected. Using money from MI premiums, the FHA helps troubled borrowers and backs lenders if loans go into foreclosure. Mounting foreclosures in recent years have depleted the FHA’s fund and this fee hike is to replenish the fund. Up-front mortgage insurance is now 2.25% of loan amount which can be financed or paid at closing. Monthly mortgage insurance is now .5% or .55% (depending on down payment) of loan amount and paid monthly for at least 5 years. Today’s FHA bulletin confirms that up-front MI will drop to 1% and monthly MI will rise to .85 or .9% (depending on down payment) on October 4. On a $500k loan, these proposed changes mean an estimated $112 monthly cost increase. FHA loan shoppers need to work with their mortgage advisor now to evaluate the impact of these changes.

Private Mortgage Insurance Comeback?
As FHA mortgage insurance (MI) hikes are coming, private MI companies have relaxed guidelines. Depending on your loan amount and where you live, different private MI options allow for a loan to go up to 90% or 95% of your home’s value. And private MI is a bit cheaper than the newly proposed FHA MI premiums. Private MI has no up-front premium and most monthly premiums range from .5% (for a loan up to $417k) to .8% (for loans above $417k). Private mortgage insurance companies have also had tough times in recent years, so they are very strict on loan approvals. They have special rules for a borrowers credit score and history, they scrutinize the home’s value closely, and they take a bit longer to approve loans. But with FHA rules changing, private MI will become another option to consider for borrower with less than 20% home equity.

 

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