FHA has ruled new changes to become effective April 1, 2012. This will be the 4th change in 4 years. These new rules will apply to both new home purchase as well as refinances.
FHA has two levels of mortgage insurance; Up-front MIP as well as monthly MIP. Currently on all FHA loans, there is a 1.0% upfront funding fee. This will be increased to 1.75%. The monthly amount is 1.10%, and will be increased to 1.25%. To give you an example, based on a $200,000 loan amount:
Current Up front MIP: New Up Front MIP:
Current Monthly MIP: New Monthly MIP:
So what does this mean to the consumer? With higher payments, you may not qualify for as much home as you would have prior to April 1st. If you are currently pre-approved with a lender, I would call to make sure you are still OK with the new guidelines coming into effect. As long as your FHA case # is assigned prior to April 1st, 2012, you can take advantage of the lower rates currently in place. You must have a property address or purchase agreement to do so.
More proposed changes are in the works. One of these changes could possibly be a reduction to seller paid closing costs, which is currently set at 6% of the purchase price.
Conventional financing is becoming more and more attractive as FHA makes these changes. There are 97% financing programs available; that also allow for lower credit score options. They also offer lower MI per month, and do not charge the upfront funding fee of 1.75%.
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