HUD announced in Mortgagee Letter 2010-02 that effective April 5, 2010, the Upfront Mortgage Insurance Premiums (MIP) on FHA loans will be increased. This will effect Orange County FHA borrowers who are looking to purchase a home or refinance using FHA financing. Over the past year FHA has played around with different premiums, but most recently the Up Front Mortgage Insurance Premium has been 1.75%. On April 5, the premium will jump to 2.25%. While HUD also announced a few other proposed changes to the FHA program that will effect Orange County FHA borrowers, the Mortgagee Letter only covered the MIP changes.
How Much will this Effect Orange County FHA Borrowers?
Realistically this will not have much of an effect. The MIP is not something an FHA borrower has to come out of pocket for anyway. The MIP is financed into the loan. For example, if a first time home buyer purchases a home in Placentia for $400,000, they would need the standard 3.5% down payment of $12,250 (3.5% x $350,000 = $12,250) resulting in a “base” FHA loan of $337,750. Using the current MIP rate of 1.75%, the MIP to be financed into the loan would be $5,910, resulting in a total FHA loan of $343,660. Assuming a 5.5% interest rate, the principal and interest payment would be $1,951. Using the same base loan amount but adding the new 2.25% MIP of $7,599 ($337,750 x 2.25% = $7,599) the total FHA loan would be $345,349. Using the same 5.5% interest rate, the principal and interest payment would be $1,960. Bottom line is the resulting payment difference between the two MIP’s is only $9 per month. That’s not enough to keep anyone from qualifying for a loan.
MIP Changes for the FHA Streamline Program
The MIP will also change to 2.25% for the FHA Streamline program. Currently the MIP on an FHA Streamline refinance in Orange County is 1.5%. This means the MIP increase will effect the Streamline program even more than for purchases and full credit qualifying refinances. This gives some incentive to those Orange County FHA borrowers who are thinking of refinancing to act quickly. Mortgage interest rates for Orange County borrowers are low so far this year (beginning of 2010), so with changes coming, now is the time to check out whether a Streamline refinance makes sense.
The FHA Reverse Mortgage, aka Home Equity Conversion Mortgage or HECM, will have a Mortgage Insurance Premium of 2%. The MIP is financed on the HECM as well, so this will have almost no effect.
The good news for those Orange County borrowers eligible for VA financing is that there are no changes to the Funding Fee being proposed at this time. And VA borrowers also do not need to contend with the Monthly Mortgage Insurance that FHA borrowers pay.
2010 will likely see many changes as the year moves along. Most of those changes will be tightening of guidelines and possibly more mortgage insurance increases (especially to the monthly mortgage insurance). Now is the time to move quickly, get prequalified by an Orange County FHA lender, and purchase a home before the $8,000 First Time Home Buyer Tax Credit expires.
Authored by Tim Storm, an Orange County, CA Loan Officer – Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
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*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
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This HUD article for first time home buyer is a great resource. Thanks for the useful post Tim!