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Cost of buying a home

HUD Announced an Increase in FHA Fees

Image Increased costs FHA home loans oconomowoc wisconsin wiOn 3/6/2012 HUD’s Official Announcement came out (click here to read it). The revisions/updates below are in red.

As part of HUD’s ongoing efforts to increase their financial health – and to get the FHA back into a place where they meet their capital requirements – on Monday, HUD announced the anticipated increases in the premiums they charge borrowers for FHA loans.

In its simplest form: The cost of borrowing is going to rise.

As you might know, the standard FHA loans are less risk-sensitive with their underwriting guidelines relative to conventional loans (that means lower credit score requirements, less money down, higher debt-to-income ratios, etc.). FHA is not a lender. Instead, they are a federally-backed insurance company that insures lenders against default on loans that are in compliance with their published guidelines.  A PMI company would be a private equivalent of the FHA. It is because of this insurance that lenders approve and close loans with more liberal guidelines; without it, the loans could not be closed.

As a federally-backed insurer, the government charges two types of premiums on the FHA mortgages:

  • Monthly Mortgage Insurance Premium (UFMIP) This, too, will increase. It will go up 10 basis points (0.1% per year) on April 1, 2012 for all cases assigned on or after April 9, 2012 to cover the requirements of the payroll tax extension approved in December of 2011. You might recall that this was already tacked on to conventional loans from a post I wrote a while back. This is a direct increase of 10 basis points (0.1%) in the borrower’s mortgage payment. For those in very high cost areas, FHA loans over $625,000 will be bumped 35 basis points from today’s levels effective June 1, 2012 for all cases assigned on or after June 11, 2012.
  • Up Front Mortgage Insurance Premium (UFMIP) This fee will, effective April 1, 2012 for all FHA cases assigned on or after April 9, 2012, go from its current 1% to 1.75% of the loan amount. One huge advantage to this UFMIP is that it is customarily built into the loan and does not require additional cash from a buyer at closing. That increase, however, certainly does impact monthly payment and cash flow.

Bottom Line:

  • If you are selling a home, get it priced correctly and under contract this month.
  • If you are buying a home, it’s quite possible that right now is the time where the cheapest possible mortgage is available – ever.  It’s time to make that to get yourself into a home!

To find out how this impacts you directly, please contact me directly for a completely free consultation.

Hidden Mortgage Tax Takes Effect Soon

Did you know that late last month (12/23/2011) our Congress and President passed into law the Temporary Payroll Tax Cut.

That’s great news, right?!

Not so fast…Did you know that they decided to fund this Temporary Payroll Tax Cut via guaranty fee increases by Fannie Mae and Freddie Mac?  What they didn’t realize is that they have, in effect, now put a tax on all potential new homeowners and existing homeowners who borrow money through the traditional channels here in Wisconsin, California and, well, America, frankly, to subsidize payroll tax cuts for all.

The mandated increase is 10bps (0.1%) to the interest rate –  which will equate to a worse price (fees) somewhere in the 30-50bps (0.3% to 0.5% of the loan amount) neighborhood  to my customers – to you – when comparing costs/rates before the change to those same numbers after the change!  This goes into effect on all Mortgage Backed Securities* issued on or after April 1st (per Fannie Mae guide announcement 2011-14) thus we will all be seeing the cost of buying a home  increase very soon.

*This requirement is effective for securities issued on or after April 1, 2012. Thus, for Envoy and the entire lending community, it basically becomes effective in the next week or so, since most locks being taken now will not fund for another 30 days or so, which, in turn will be pooled into April securities.

Update 1/6/2012: The pricing adjustment will be 0.45% to the fees or 0.125% to the rate. This will take effect for all locks executed on or after 1/9/2012 for locks 45 days or longer and on 1/16/2012 for locks 30 days or less.