Congress has authorized FHA to change the amount charged to borrowers for both the Up Front and the Annual Mortgage Insurance (MI) premiums. These changes as outlined in Mortgagee Letter 2010-28, are effective for all FHA case numbers assigned on or after October 4th, 2010.
Here are the six things you need to know about these changes if you are buying a Jersey Shore home:
- The MI premium changes apply to purchases, regular refinances and streamline refinances only (reverse mortgages have different MI premium changes).
- The current Up Front MI premium is 2.25% of the loan amount and the new Up Front MI premium will be 1.0% of the loan amount for all standard FHA programs.
- The current monthly MI premium is .55% and the new monthly MI premium will be .90% if the Loan-to-Value is GREATER than 95% on 30 year loans. Since most buyers put only the minimum 3.5% down this applies to most loans.
- The current monthly MI premium is now .50% for Loan-to-Values EQUAL to or LESS than 95% on 30 year loans and the new monthly MI premium will be .85%.
- The Annual premium is now .25% for Loan-to-Values GREATER than 90% on 15 year loans.
- There is no monthly MI premium Loan-to-Values EQUAL to or LESS than 90% on 15 year loans.
FHA is still a fantastic loan program and appropriate for many Jersey Shore home buyers to qualify as FHA is more lenient on credit scores than conventional loans. The reduction in upfront MI (which is typically financed into the loan) is terrific since this was a big chunk of the down payment. However, the hike in the monthly MI will definitely make conventional loans with Private Mortgage Insurance more attractive again for those buyers who can qualify for either loan option.
This new law also gives FHA the authority to raise the Annual MI premium, at will, up to 1.5% for Loan-to-Values at or below 95% and 1.55% for Loan-to-Value more than 95%. If that were to occur, FHA loans would be far less competitive than conventional PMI.
If you have questions about the changes to the Up Front and Annual MI premiums and how it will impact your Jersey Shore home purchase or refinance, please feel free to give me a call so we can discuss over the phone.