FHA Mortgage Insurance Increase and More Bad News for Buyers

On April 1st, 2013 the annual mortgage insurance (paid monthly as part of the PITI) will be increasing from a factor of 1.25 to 1.35 on the minimum down 30-year term FHA mortgage.

Currently on a $200,000 loan amount the monthly mortgage insurance would be $208.33, for case numbers assigned after April 1st the new 1.35 factor on a $200,000 would be $225 per month. Not an Earth shattering amount by any stretch, but considering four years ago the factor was only .55, on a $200,000 loan amount the old mortgage insurance was only $91.66 per month. It has only gone up over the past four years and here it goes up again.

Perhaps the bigger issue is what goes into effect on June 3, 2013, at that point any new FHA loans putting the minimum down will have monthly mortgage insurance for the life of the loan. The only way to get rid of it will be to refinance out of FHA. This unfortunately is a blow to using FHA, but for many people they don't have much of a choice because they only meet the guidelines for FHA, and not a conventional mortgage.

The reason behind these changes? Survival. Without it the FHA program, which has been around since 1934, would likely fold up and go away, that would be an enormous blow to real estate, and I hope we never see the demise of the FHA program.

Just to clarify a couple things that have come up recently, I have read two articles in the past couple weeks in magazines that have made it sound like someone can only get a mortgage if they have 20% down. That is not the case, on FHA a borrower only needs 3.5% down. Also, I have read that people who had foreclosure, bankruptcy, or short sale will have to wait forever to buy again, blah, blah, not true, the universal rule for FHA is worst case scenario after 3 years or less someone is eligible for FHA financing again. So be aware of some of the misinformation out there, when in doubt consult your FHA 4155 guidelines, or contact me and I will get you the answer.

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor

Ritchie School of Real Estate Finance

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Patrick@PatrickRitchie.com

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