My Mind on Mortgages » FHA

What are FHA minimum property requirements?

Evan — Mon, 09 Apr 2012 21:07:32 +0000

Homes that are the subject of a FHA mortgage application must meet minimum property requirements as determined by the Department of Housing and Urban Development (“HUD”: the agency which oversees the FHA mortgage insurance program). I am often asked if specific repairs will be required by the lender when a FHA loan is in play.

The guidelines are actually easily accessible so I thought I would post them here. If you are a realtor I would encourage you to read chapter 3 of HUD handbook 4150.2 which you can access HERE and chapter 2 of HUD handbook 4905.1 which you can access HERE.

Since underwriters don’t make visible inspections of homes they reply on the appraiser to inspect the home and highlight any “lender required repairs”.

FHA to raise mortgage insurance premiums…again

Evan — Tue, 28 Feb 2012 17:24:08 +0000

The Federal Housing Administration announced that it would increase the mortgage insurance premiums for FHA mortgages beginning April 1st, 2012. Here is the announcement copied from the FHA website:

“…FHA announced a new premium structure for FHA-insured single family mortgages: as of this spring, the annual mortgage insurance premium (MIP) will increase by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount; and upfront premiums (UFMIP) will increase by 0.75 percent…these changes would have a minimal effect on homeowners.“

Currently, borrowers who opt for a FHA 30-year fixed rate putting the minimum 3.5% down payment finance an upfront mortgage insurance premium equal to 1% of their loan and then pay monthly mortgage insurance based on a 1.15% annualized premium. Under the new structure the upfront mortgage insurance premium will increase to 1.75% (+.75%) and the annualized premium used to determine the monthly mortgage insurance payments will increase to 1.25% (+.10%).

How do these changes impact mortgage payments? Here is a chart comparing the new and old structures based on a $200,000 purchase price, 3.5% down payment, for a 3.75% FHA fixed rate:

Congress restores FHA loan limits

Evan — Mon, 21 Nov 2011 20:48:26 +0000

Congress approved an appropriations bill that amongst other things restores the FHA loan limits that have been in place the past 2 years and extends them through 2013. For the Portland-Metro area this means the maximum FHA loan amount goes back to $417,000. If you’d like to check another location you can do so at THIS LINK.

FHA loan limits decrease as of October 1st, 2011

Evan — Tue, 11 Oct 2011 15:57:26 +0000

Sorry for the late post on this topic. As of October 1st, 2011 FHA loan limits for most areas of the country have declined as a result of expiration of stimulus legislation. Currently, the FHA loan limit for a single family residence in the Tri-county area (Portland, OR) is $362,250. This figure can adjust as of Janaury 1st, 2012 but barring any new legislation I wouldn’t expect it to. You can use THIS LINK to check the FHA loan limits for other areas.

FHA mortgage insurance premiums on the rise…again

Evan — Thu, 03 Mar 2011 23:43:57 +0000

You may remember that HUD increased monthly mortgage insurance premiums on FHA loans last year in an effort to shore up finances for the FHA insurance poll. Unfortunately, HUD is at it again. Beginning with FHA case numbers assigned after April 17, 2011 monthly mortgage insurance premiums will be going up .25% for 30 year mortgages and .50% for 15 year mortgages. HERE is a link to download the mortgagee letter in case you want to read the news directly from the source.

What does this mean for homebuyers? It means monthly payments will rise. On a hypothetical purchase of a home for $215,000 the total monthly “PITI+MI” payment would increase from $1,509 to $1,552; an increase of $43 per month.

To avoid this change homebuyers would have to be in contract to buy a home a couple days before April 17th so that the lender could register the loan with HUD prior to the change. The upfront mortgage insurance premium that gets financed into the loan amount would remain unchanged at 1.00%.

Mortgage Loan Limits: FHA & Conforming

Evan — Tue, 11 Jan 2011 19:00:39 +0000

In case you want to find a FHA or conforming loan limit for a specific area around the country you can use THIS HANDY WEBSITE from HUD.gov.

HUD announces increase to mortgage insurance for FHA loans

Evan — Mon, 09 Aug 2010 16:05:11 +0000

The Department of Housing and Urban Development released THIS STATEMENT last week announcing upcoming changes to the popular FHA loan program. The changes will take effect September 7th October 4th and are designed to increase mortgage insurance revenue to help stabilize the FHA insurance pool which makes FHA loans possible. Effectively, HUD is decreasing the upfront mortgage insurance premiums (currently 2.25%) by 125 basis points (1.00%) but increasing the monthly mortgage insurance by 35 basis points (from .50-.55% to .85%-.90%). The change will increase monthly payments and decrease affordability. Here is the impact per $100,000 in loan amount:

Current MI arrangement for >95% loan-to-value per $100,000

Loan Amount: $100,000

Upfront Mortgage Insurance Premium (2.25%): $2,250

Total Loan Amount: $102,250

Monthly Mortgage Insurance Premium (.55%): $45.83

Monthly Principal & Interest + Mortgage Insurance @ 4.50%: $563.92 (does not include property taxes or homeowner’s insurance)

New MI arrangement for >95% loan-to-value per $100,000 as of September 7 October 4th, 2010

Loan Amount: $100,000

Upfront Mortgage Insurance Premium (1.00%): $1,000

Total Loan Amount: $101,000

Monthly Mortgage Insurance Premium (.90%): $75.00

Monthly Principal & Interest + Mortgage Insurance @ 4.50%: $586.75 (an increase of 4.05%-does not include property taxes or homeowner’s insurance)

See the spreadsheet HERE.

Higher FHA premiums on the horizon

Evan — Fri, 11 Jun 2010 15:43:06 +0000

The Mortgage Banker’s Association is reporting that the FHA Reform Act of 2010 passed the US House of Representatives. This bill was drawn up in response to many of the solvency issues that the FHA began encountering late last year (see HERE). One of the most aggressive provisions of the bill is that it will allow the FHA to charge up to 1.55% in annual mortgage insurance premiums. This is up from the current maximum of .55%. How does this translate into dollars?

Currently, for a homebuyer that buys a home for $250,000 and puts the minimum 3.5% down that is required by FHA financing their monthly mortgage insurance premiums are $110.57. Their total principal, interest, property taxes, homeowner’s insurance, and mortgage insurance (PITI) is about $1,737.

With the proposed mortgage insurance the same homebuyer would have monthly mortgage insurance premiums of $311.61 (181% increase). Their projected PITI payment would be $1,938 (11.6% increase).

The bill has yet to become law but I suspect that it will. It’s unclear at this point how quickly the new provisions would be put in place. I’m curious to know how happy the private mortgage insurers are about this. The increase of mortgage insurance premiums should generate a lot more business for them.

HUD announces important changes to popular FHA program

Evan — Fri, 22 Jan 2010 16:04:56 +0000

Two days ago HUD announced changes to the popular FHA loan program. The changes are designed to “strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for undeserved communities.“

If you’ll recall last September FHA announced that their capital reserves (used to insure FHA mortgages) fell below mandated levels. These changes are designed to raise more money to boost those reserves and tighten their underwriting requirements so that the loans they are insuring are less risky.

These changes take effect for loan applications after April 5th, 2010. I’ve underlined what I think are the most relevant changes for consumers and real estate professionals to be aware of:

Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

The first step will be to raise the up-front MIP by 50 bps to 2.25% (it is currently 1.75%) and request legislative authority to increase the maximum annual MIP that the FHA can charge.
If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP (this will increase monthly payments).
This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

Update the combination of FICO scores and down payments for new borrowers.

New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Reduce allowable seller concessions from 6% to 3% (this will make it more difficult for first-time homebuyers to buy-down their rate and/ or require they have more cash to close)

The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Increase enforcement on FHA lenders

Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
- This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
- Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
- This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
- Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
- Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
- Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

Summary of FHA 203B mortgage features

Evan — Fri, 18 Dec 2009 20:20:44 +0000

There are a few things to know about standard FHA loans.

*Minimum down payment requirement: Currently homebuyers who use FHA mortgage financing to buy a home can put as little as 3.5% down and borrow the remaining amount.

*Down payment may be gifted: FHA is one of the few programs that allows the entire down payment to be gifted from a family member even if the down payment is less than 20%.

*Seller may pay settlement charges: Currently the seller may pay up to 6% of the sales price towards a homebuyers settlement charges.

*Higher debt-to-income qualifying ratios: FHA is a little less restrictive than conventional financing when it comes to approving an application on the basis of an applicant’s debt-to-income ratio (DTI=sum of proposed housing payment + other monthly obligations/ gross qualifying income).

*Mortgage Insurance: The one major downside of FHA loans is that the associated mortgage insurance is expensive. Currently purchasers who utilize a FHA loan to buy a home finance an upfront mortgage insurance premium (UFMIP) equal to 1.75 % (as of April 1, 2012) of the base loan amount and still pay a monthly premium that is equal to .1000-.1042% (as of April 1, 2012) of the base loan amount depending on the down payment. For example, a FHA $200,000 purchase with a 3.5% down payment would carry an UFMIP of $3,378 and monthly premiums of $201.04. A homeowner with a FHA loan must keep the mortgage insurance for at least 5 years. After that time they will be eligible to have the mortgage insurance canceled once the loan balance drops below 78% of the initial purchase price (or initial appraisal if it was less).

*Loan are assumable: One of the coolest features about a FHA loan is that it is assumable. This means that when a FHA loan holder goes to sell their property they can sell the home with the mortgage on it so long as the buyer qualifies for the existing mortgage. This is a very attractive feature given the current level of interest rates. FHA borrowers are encouraged to read the small print closely because having another party assume your mortgage may not release them of personal liability.

It is likely that some of these features will change with time so please confirm this information with a mortgage originator when applying for a FHA mortgage.