Are you borrowing money under FHA financing to purchase your  new home?    If so,  you do want to sign the Purchase Contract and make sure your lender gets a new FHA Case number before a new bill that will increase FHA’s annual premiums is signed into law by President Obama. 

  H.R. 5981 is a bill that passed the Senate and will allow FHA to increase its annual premiums.  The increase can go from the present 0.55 percent to 1.55 percent.

 With an FHA loan the borrower does pay monthly mortgage insurance and an upfront premium that can be paid cash at closing or financed into the loan amount – most borrowers choose to finance since this will allow for less cash due to close.   Although the upfront Mortgage Insurance premium is expected to be lowered, by increasing the monthly premium your monthly mortgage payment will still be higher. 

 What this means to a consumer for example, based on a  home Purchase Price of $350,000 with the present minimum down payment  of 3.5 percent.  Your  Monthly  “MIP” or Mortgage Insurance Premium can increase as follow:

                                                   Today                             Proposed

  Loan amount          $345,350.00                          $341,128.00                                   

 MIP @  0.55%          $158.29         vs.   MIP@1.55%  $ 440.62

 The mortgage insurance payment can increase up to $282.33  

 Beside paying more,  the higher payment may affect the debt-to-income ratio required by the Lender to qualify, the option would be a lower sales price.    Other than a VA loans which provides no down payment loans to eligible U.S. Veterans, in South Florida at the present time, FHA is the program available to purchase a home with Down Payment as low as 3.5 percent of the Sales Price. 

FHA requires that the property is used as Primary Owner Occupied.    Income, funds to closing and borrower’s credit is carefully verified.   Because seller contribution towards the closing cost is allowed and gifts from family members, charitable organizations, employers, and government entities are permitted –provided that none of the parties financially benefit from the sales transaction- this program has help many South Florida families purchase a home.

Other changes may also be made to the current program.  At present FHA is soliciting comment on three specific measures to reduce financial risk and preserve affordable mortgage financing for responsible consumers:  1) Increase downpayment requirements for new borrowers; 2) Reduce allowable seller concessions from 6 percent to 3 percent; and 3) tighten underwriting standards for manually underwritten loans. 

  Please click here, for a copy of  HUD’s Press Release on the policy change.   To submit your letter, please click here, once on this page, click “submit Comment” at the top to send your letter.   

  This article was written by:  Elizabeth Lindgren