New FHA Loan Requirements Begin April 1, 2013

As a real estate agent,  today’s blog relates to Brookside/Waldo home buyers who plan to use FHA financing.  Many buyers  often use FHA loans to finance their purchases.  Two reasons why: FHA requires the least amount for a down payment:  3.5% of the purchase price of the home, vs 5% for a conventional loan; and it’s easier to get pre-approved for a loan if your credit score  is less than what a conventional loan requires.  However, starting April 1, 2013, the MIP fee (“‘mortgage insurance premium”) associated with an FHA loan is going up so buyers will be paying more to finance a home purchase using this method.  Here are the details:

Currently the MIP fee is 1.25% of the loan amount, and this fee is dropped once 22% equity is gained and the homeowners have paid 5 years on the loan.   After April 1, the fee will be 1.35% and  this fee is permanent. For example, a $200,000 loan amount today would have a $208 per month MIP fee.  These changes mean that after April 1, the fee will be $225 per month, for the life of the loan.

This is a big change for buyers.  It means increased monthly payments , regardless of how much equity is earned during ownership.  A homeowner can refinance at some point to drop the  MIP fee, but this is still a major change for buyers who want to use FHA financing.

Why the increase? FHA is paying millions  more regarding loans that have defaulted due to the housing crash.  By law, the agency must maintain a certain level of funds–and the balance sheet is way  short of what’s needed.  So –guess who gets to make up the shortfall  because the  agency didn’t follow their own guidelines?  Homebuyers, mostly first time buyers, just trying to get their piece of the American Dream by purchasing a home.  (Yes, I had to make a personal comment here!)

If you are planning a spring home purchase using an FHA loan, contact your lender now for specifics on what this change means for your particular situation. You may want to get under contract before April 1, 2013 if possible to avoid these new fees.   

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