FHA today increased it’s upfront mortgage insurance premium requirements for Bay Area FHA Home Loans. Upfront Mortgage Insurance is the money that FHA collects at the time of closing a mortgage to insure the loan against default. Currently, this premium is 1.75% for most purchase and refinance transactions. However, effective April 5, 2010, FHA will collect an upfront mortgage insurance premium of 2.25 percent for purchase money and refinance transactions, including FHA-to-FHA‚ streamlined refinance transactions. Below is the breakdown of FHA upfront mortgage insurance for different loan programs:

  • Purchase Money Mortgages and Full-Credit Qualifying Refinances = 2.25 percent
  • Streamline Refinances (all types) = 2.25 percent
  • HOPE for Homeowners (Delinquent Mortgagors) = 2.00 percent
  • Home Equity Conversion Mortgages (Also called Reverse Mortgages) = 2.00 percent

As a borrower, it means higher cost for you to take an FHA loan. However, FHA allows upfront mortgage insurance premium to be added to the loan amount. Hence the change in the policy wouldn’t necessarily mean larger “cash to close” requirement.

Note that Annual premiums will not change at this time. The annual premiums are detailed below for FHA traditional purchase and refinance products:

Background – We saw it coming for some time now. FHA’s supplementary reserves last year fell below mandatory 2% of the loans it insures. This extra capital cushion was about 3% in early 2009, down from 6.4% in 2007. FHA has faced higher claims because of more defaults – 7.8% of the single-family mortgages are 90 days or more overdue, up from 6.6% a year earlier. To shore up their reserves, FHA has been exploring options to increase either the Credit Score Requirements, Down Payment requirements or Insurance Premium or all 3 of them. At this time they have settled with announcing chanes only to the Upfront Mortgage Insurance requirements. But the other two changes are not completely ruled out later in the year, if FHA continues facing higher default rates.

Just last week, FHA had temporarily waived flipping requirements.

If you are a Bay Area First Time Home Buyer and/or want to know how the recent changes to FHA guidelines will impact you, please call me at 408.905.6261 or email me at shashank@arcuslending.com

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