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You may have seen previous announcements
describing increases in FHA monthly mortgage insurance
(PMI) rates, which have skyrocketed over the past 3
years. Last Monday, April 1, the annual PMI rate went up again, from 1.25% to 1.35%. This means that on a $150K purchase with 3.5% down (a typical FHA scenario, which we use as an example) the total monthly PMI payment, in addition to the principal, interest, taxes, and insurance, would be a whopping $162.84. The PMI rate for FHA loans has increased 245% since 2010. The government has raised it in steps, saying each is a “minor increase.” The reality is that these "minor increases" can easily make or break the ability of a family to get a home. No Congressional approval was needed for this latest increase. When the initial rate hike was approved in 2010, it had room for additional increases written in! They can raise it to 1.55% without any further need for legislative approval. On our $150K example house, this would make the monthly PMI payment $186.97! VERY IMPORTANTLY, another major FHA change for the worse will take effect June 3, 2013: Currently, FHA requires that you carry PMI for a minimum of 5 years. After that, IF you have paid down your mortgage and/or your house has appreciated to the point where your loan to value (LTV) is 78% or less, you can then drop the PMI insurance. For new FHA loans which originate on or after June 3, 2013 the PMI insurance will stay in place for the life of the loan! This means that the only way to eliminate the PMI will be to refinance. NOTE: These changes DO NOT affect existing FHA loans! Changes such as these are not retroactive. They only apply to new FHA loans beginning on a specific date. You can view the official document with all the details about these changes here. As we have been saying for some time, it is becoming more and more difficult to finance a house. FHA is a popular type of loan, and these latest changes will affect a lot of borrowers, adding to that difficulty. If you or anyone you know is thinking about buying or selling a home, we strongly advise taking action NOW! There’s still time to get a house under contract before June 3. Greg and Danielle |
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