In FHA's infinite wisdom, their commissioner David Stevens announced he was implementing changes that will "save buyers money", while raising additional, critical funds necessary to keep FHA afloat. Does something smell funny to you? If you think something smells fishy, you're not alone. Mr. Stevens says he's going to raise MORE money by reducing YOUR BUYER'S COSTS! You're right - He's only telling HALF the story. (sounds like more of a politician, than a commissioner!)
Let's get to the bottom of it. Congress HAS ALREADY PASSED legislation that will allow Mr. Stevens to increase FHA's infamous mortgage insurance to raise more capital. He has announced, that EFFECTIVE SEPTEMBER 7th, the following changes will occur: FHA's Up Front Mortgage Insurance Premium (currently 2.25% of the loan amount) will DECREASE to 1.00%. Hooray...Our buyers are saving money! OK, now the rest of the story. The monthly Mortgage Insurance rate (currently .55%) will increase to between .85% - .90%. What is the net affect? See the chart below
As you can see, looking at a $200,000 loan at 5.00% interest rate, after September 7th, the loan amount actually decreases to $202,000, from $204,500, however, when you add in the new Monthly Mortgage Insurance, the payment jumps from $1,190 to $1,234. This, effectively increses the buyer's interest rate .33%.
An even scarier proposition is that Congress gave Mr. Stevens the authority to increase the monthly Mortgage Insurance Premium to 1.55%. Illustrated in the chart, you'll see at that rate, a buyer's monthly payment would jump again another $109 or $153 per month more than the current MI rate! Keep in mind, this change begins with FHA Case Numbers issued after September 7th. If you have buyers sitting on the fence and can't decide on a home NOW is the time to pull the trigger before their payment jumps up!
Stay tuned for more information!
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