We have three brand-spankin' new Mortgagee Letters from HUD (new guidelines come out in the way of mortgagee letters.) The first of the 3 letters is the one that will affect all buyers using FHA loan products. The monthly MI (mortgage insurance) factor is being increased once again. Since October 4, 2010 the monthly mortgage insurance factor has been set at a rate of .90 annually. This was a huge increase over where the monthly MI had been set at .55 annually, paid monthly prior to that date.
The new increase coming on April 18, 2011 will increase the monthly paid MI once again from .90 to 1.15, an increase of 25 basis points.
This is a quick example of how the monthly mortgage insurance is calculated and how it will break down on an average purchase price of $225,000.
Purchase price $225,000
Down Payment 3.5% ($7875)
New loan amount = $217,125
Upfront Mortgage Insurance (1%) = $2171.25
New total loan amount with upfront MI =$219,296
Principal & Interest Payment at 4.75%= $1143.95
Old Monthly Mortgage Insurance @ .90=$162.84
New Monthly Mortgage Insurance @ 1.15=$208.08
The difference in the old and new monthly MI is $45.24 per month on an average purchase price. Just to give you an idea that is like increasing the rate by .375% on an average loan amount. Its amazing to me that in one fail swoop FHA comes in and effectively increases every ones payments by an amount equivalent to .375% on average. If you look at what they have done since October 4, 2011 it is even more shocking, on an average purchase price the monthly MI increase has increased the monthly mortgage payments by $109 per month which has roughly the same effect on the borrower as increasing the interest rate by .750%.
By increasing the monthly mortgage insurance premiums again it will make the same borrowers qualify for lower purchase prices thereby keeping more pressure on already pressure cooked home values.
In my opinion HUD, which has recently reported the highest reserves in the last decade, is being very near sited by looking at increasing cash flow, this at a time when $109 per month to the average home buyer may be the difference of them buying a new home or staying where they are.
Its making the conventional MI products a lot more attractive these days, maybe that's what HUD wants???
Bottom line is this....If you are looking to buy a home this spring or summer you will need to apply with your mortgage company prior to the 18th of April. Make absolutely sure that your loan officer has ordered your case# prior to that date if you have a property identified.
If you are planning on working with me on your financing then no need to worry, I will make sure your case# is in the file the day we have an accepted purchase contract.
Stetson Lowe - Utah Mortgage Broker
