Starting April 1, home buyers utilizing FHA financing will see a significant increase in the Mortgage Insurance Premium (MIP) paid upfront by buyers. The MIP premium will rise from the current 1% to 1.75%. Besides the one-time upfront fee, the monthly MIP will also rise 0.1% for loans under $625,000 and 0.35% for loans above $625,000 beginning June 1.
MIP is charged to FHA buyers to cover the cost of foreclosing on loans and liquidating properties which go into default. FHA loans are originated by banks and mortgage bankers using their own capital, with the stipulation HUD will step in and take over the loan if the buyers default. Since the federal government backs these loans, borrowers can purchase a home with as little as 3.5 % down payment monies. In theory, the MIP pays the cost of administering the program so taxpayers do not have to subsidize this loan program. VA loans for veterans are structured similarly.
Other changes to the FHA loan program coming soon include reducing the amount a seller can credit the buyer for closing costs. Currently, sellers can offer up to 6% of the purchase price for the buyer to use for loan fees and other costs to secure a loan. Indications are this will be capped at 3% in the near future.
The reasons cited for the changes in a recent article in The Los Angeles Times include the fact demand for FHA loans has increased to 40% of all new home purchases. Despite the rapid growth in usage, capital reserves have declined far below levels mandated by Congress. Combined with increasing delinquencies, the program is under pressure to rebuild reserves and make the program self-sustaining once again. During the housing bubble, FHA loans were only utilized by a small number of home buyers because conventional loans offered no money down loans.
Let us connect you with a home mortgage consultant that can provide you with the loan options that best fit your needs.
Terri Erickson | Wright Sherburne Realty | terri@wrightsherburnerealty.com | (612) 889-2808
