FHA’s insurance fund continues to hemorrhage money like crazy, so here comes more changes to its mortgage insurance requirements. For case numbers assigned on or after April 1, 2013 (case numbers are requested by your lender once you start the FHA loan application process), FHA is increasing its annual MIP rates. For case numbers assigned on or after June 3, 2013, FHA will require borrowers to pay annual MIP for longer than what is currently required.
Annual MIP Rates to Increase
For case numbers assigned on or after April 1, 2013, the annual MIP mortgage insurance (which is paid as part of your monthly payment) will increase by 10 basis points. The following is a chart showing a comparison of the current and future rates. For an explanation of how mortgage insurance applies to FHA loans, see my post here.
FHA to Collect Annual MIP for Longer
Under current policy, FHA only collects annual MIP until two conditions are met: the loan is paid down to 78% LTV and at least five years have elapsed since the origination of the loan. For case numbers assigned on or after June 3, 2013, however, FHA is going to start collecting annual MIP for much longer. The following are the changes:
- For LTVs less than or equal to 90%, the annual mortgage insurance will continue for up to the first 11 years of the loan.
- For LTVs greater than 90%, the annual mortgage insurance will continue for the life of the loan.
- The annual mortgage insurance exemption is to be removed for loan terms less than or equal to 15 years and LTVs less than or equal to 78%.
Nobody enjoys paying mortgage insurance, but it’s essentially the “cost of doing business” when taking advantage of the aggressive rates and less stringent lending requirements of an FHA loan. Unfortunately, these new changes are going to make FHA financing a little less appealing for many home owners and buyers.
Other changes the FHA is making include increasing minimum down payments on loan amounts above $625,500 to 5% and implementing more stringent underwriting guidelines on borrowers with debt-to-income ratios above 43%. FHA also plans to more aggressively crack down on lenders marketing to borrowers with previous foreclosures.
Get Your Case Number Before April 1
If you’re considering taking out an FHA loan in the near future, I encourage you to make sure your lender requests your case number before April 1, 2013. If you’re not sure they’ve done, be sure to ask.