FHA Changes - AGAIN!
On September 7th, the Federal Housing Administration will make yet another change to Mortgage Insurance Premiums. It can be considered a change for the worse, but I consider it a positive change for a couple of reasons.
A few months ago, the FHA increased mortgage insurance premiums during the time period where the tax benefit was in full force. These changes may have slowed the momentum of home-buying that the tax benefit was producing and may have thwarted buyers. The sales were great during the tax benefit, but this may have been counterproductive.
So while the tax benefit has ended, a new plan must be implemented to allow the market more incentive to buy real estate. This new plan enables home buyers to pay a 1% Mortgage Insurance Premium Funding Fee (MIP/FF) and pay a monthly premium of .90%, as opposed to the 2.25% (MIP/FF) and .55% (Monthly Premium). It’s less expensive up-front, more expensive on a monthly basis, but beneficial overall.
What does this look like in real numbers? Well, a $100,000 loan amount would yield a MIP/FF of $1000 versus $2500. Additionally, the monthly mortgage premium would be $45.83 with the current premium but increased to $75 when the new premium is implemented. So, how do I view the benefits of these changes?
The stabilization of the FHA is paramount to enable new home buyers to purchase homes with a low down payment. Providing the FHA with a few months of receiving the 2.25% up-front MIP, allowed the cash flow for the agency to increase substantially while the tax incentive was in full force. The new decrease of the MIP/FF to 1% will decrease the cash flow, but prove to make the agency more money in the long run, as the monthly premium is almost double. The FHA is banking on home owners to stay put and own a home for a long while.
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