Friday, July 20, 2012

Mortgage Insurance Rates Increasing on FHA Loans

Mortgage Insurance Rates Increasing on Kentucky FHA Loans


Mortgage Insurance Rates Increasing on Kentucky FHA Loans

by MERIDITH DOUCETTE on MARCH 21, 2012

FHA Mortgage Insurance Rates Will Be Going Up on All New Kentucky FHA Loans Assigned April 9, 2012 and After.
Kentucky FHA Loans are loans insured by the Federal Housing Administration (FHA). These insured loans minimize the risk lenders face by allowing buyers a down payment less than 20% of the price of the home. Kentucky FHA Loans offer features that are attractive to many home buyers such as:
  • Low Down Payment – as low as 3.5% of the purchase price of the home
  • Low Closing Costs – closing costs, mortgage insurance and other fees can be included in the loan
  • Easier Credit Qualifications – those who don’t have the credit score or history to qualify for a conventional loan may qualify for FHA financing
Because Kentucky FHA loans allow a down payment of less than 20% of the purchase price of the home, mortgage insurance is required for these loans. Mortgage insurance premiums on Kentucky FHA loans are much less than premiums for private mortgage insurance and most of the premium can be added to the loan. For FHA loans, a portion of the Mortgage Insurance Premium (MIP) known as the Up Front Mortgage Insurance Premium (UFMIP) is added to the loan balance rather than being paid out-of-pocket at closing. Then, the remaining portion of the MIP due is added to the monthly payment.
While FHA mortgage insurance premiums will continue to be lower than premiums for private mortgage insurance, FHA mortgage insurance rates will be going up on all new loans assigned April 9, 2012 and after. The UFMIP rate, which is included in the loan, will change from 1.00% to 1.75% of the loan amount. The MIP rate will change from 1.15% to 1.25% of the loan amount. Here is an example of how these changes will impact a loan for $400,000*:
New FHA Loan
(After April 1, 2012)
Old FHA Loan
(March 31, 2012 or prior)
Purchase Price
$400,000
$400,000
Down Payment %
3.5%
3.5%
Down Payment Amount ($)
$14,000
$14,000
Interest Rate
4.25%
4.25%
Up Front Mortgage Insurance Rate
1.750%
1.000%
Mortgate Insurance Rate
1.250%
1.150%
Tax Rate
1.000%
1.000%
Loan Amount
$392,755
$389,860
Payment 1
$1,932
$1,918
MI Payment
$409
$374
Total Payment
$2,341
$2,291
Taxes Monthly
$333
$333
Insurance Monthly
$100
$100
Other (HOA Dues)
$144
$144
Total Monthly Payment
$2,919
$2,869

In the example above, the monthly payment goes up $50 per month. These changes can be compared as having a net effect of raising the interest rate of the loan by .25%. To buy down the interest rate by .25% to get the payment more in line with the former FHA insurance rates would cost about $8,000 out-of-pocket.
If you are planning to purchase a home using FHA financing, save money by purchasing your new homebefore April 1, 2012 to meet the April 9, 2012 deadline for the change in mortgage insurance premium rates.

*This purchase scenario is used for demonstration purposes only and may not be available at any or all communities.  This information is provided for general awareness only, and is not intended for the purpose of providing legal, accounting, tax advice or consulting of any kind.


With the new FHA Streamline Refinance program – and the recent changes in the FHA PMI rates – we’ve had several people ask, “When Can I Cancel and Get Rid of FHA Mortgage Insurance Premium?”
The good news is that unlike the USDA Loan Program (that also saw recent changes to it’s PMI rates) you actually CAN “get rid of FHA PMI!” :)
You have two types of Mortgage Insurance (PMI) with FHA.  The Upfront fee that is charged can be partially rebated if you refinance or sell within 5 year of getting the home.  The “Monthly” charge is what you can stop paying.  This charge is “technically” called FHA MIP (mortgage insurance premium) but since it’s just kinda symantics – we refer to it all as FHA PMI.

FHA differentiates between a 30 year and 15 year fixed loan as to  when you can cancel your FHA PMI :
  • 30 Year Loan Term – must pay the monthly insurance premium for a minimum of 60 months (5 years) and the loan must reach 78% loan-to-value (LTV) as a result of paying the loan down (amortization).  LTV is not determined by the new home value, it’s determined by the original sales price of the home.  LAYMAN’S TERMS:  If your original sales price was $100,000 – multiply that by 78%.  You need to get your mortgage balance down to $78,000 before FHA will allow you to drop the PMI.
  • 15 Year Loan Term – there is NO requirement that MIP be paid for 60 months but the LTV must be 78%.  LTV is based on paying the loan balance down, you calculate this the same way you do for a 30 year mortgage.  Remember, this is NOT based upon the current appraised value or the current tax value of the house.
How Can I Determine When I Will Reach 78% LTV?
There is no set number of months it will take because it varies slightly based on the interest rate and size of the down payment. If you use Excel – you can easily find an amortization program that will tell you when your mortgage will be at the “sweet spot!”  For a 30 year mortgage with 3.5% down, it will take between 9-10 years to get down to 78% LTV.
A 15 year fixed mortgage will pay down to 78% LTV between 2-2.5 years.  Remember, FHA does not require 15 year loans to keep the annual MIP for a minimum of 60 months.
How to Remove or Cancel FHA PMI Quicker
It is possible to eliminate or get rid of the FHA mortgage insurance premium quicker if you make extra payments to the principle, but only after 60 months has passed (assuming you have a 30 year loan).  FHA goes off the scheduled amortization schedule to determine when you will reach 78% LTV up until 60 months.
Refinance -If you you think you have 20% equity in your home but don’t meet the 60 months or 78% LTV based on the original purchase price or appraisal criteria, it may be possible to refinance into a conventional loan.  If you don’t have 20% equity, and have VA loan eligibility, you could refinance into a VA loan.  A VA loan requires no monthly mortgage insurance and we can go up to 100% LTV on a VA refinance.
Can I Cancel FHA PMI if My Home Upside Down in Value?
It might not seem logical – but if you’ve been in your home for 5 years… and you’ve paid it down based upon the ORIGINAL sales price to the 78% mark, you can cancel the FHA PMI you are charged on a monthly basis… even  if you’re home is upside down in value.
How Do I Cancel My FHA PMI?
This is the easy part….FHA automagically drops the monthly FHA PMI based on the amortization schedule.  You don’t have to order an appraisal and technically, you don’t even have to request the removal.  However, if we suggest contacting your servicing bank to make sure they are aware of  your projected date for your PMI removal!


-- 

Joel Lobb
Senior  Loan Officer
(NMLS#57916)

American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223

 phone: (502) 905-3708
 Fax:     (502) 327-9119

 Company ID #1364 | MB73346

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