FHA mortgage insurance is getting more expensive. At the moment, some FHA loans are exempt from mortgage insurance. Beginning in April, all FHA loans (with very few exceptions) will require mortgage insurance, regardless of the down payment or the term of the loan (15 year or 30 year). The cost of the mortgage insurance will also increase from the current rates.
In addition, beginning in June, the mortgage insurance will last a minimum of 11 years if you put 10% down, and it will never go away if you have less than 10% down. It no longer matters how much equity you build in your house - the mortgage insurance will remain in place for either 11 years or for the life of the loan.
If you are refinancing an existing FHA loan that was endorsed (insured) by FHA prior to May 31, 2009, then the new rules above do not apply.
If you currently have an FHA loan and plan to keep it, then nothing will change. Your mortgage insurance rate will remain the same as it is now and the mortgage insurance will go away when you have 22% equity in the house, or in 5 years, whichever is longer.
How will these new rules affect the real estate industry?
Probably not very much, although you are sure to read many reports about how the government is trying to kill the housing industry. In reality, the cost of a loan will only increase slightly. The payment on a 30-year FHA loan for $200,000 will go up by $16.67 a month. That's not going to keep many people from qualifying for a loan.
The important thing to keep in mind is that FHA loans only require 3.5% down, they have very low interest rates, and they are easier to qualify for than a conventional loan.
Give us a call with any questions about the new FHA rules or anything else related to mortgages.
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