FHA increases upfront mortgage insurance premium requirements for California Loans

FHA today increased it's upfront mortgage insurance premium requirements for California Home Loans. Upfront Mortgage Insurance is the money that FHA collects at the time of closing a mortgage to insure the loan against default. Currently, this premium is 1.75% for most purchase and refinance transactions. However, effective April 5, 2010, FHA will collect an upfront mortgage insurance premium of 2.25 percent for purchase money and refinance transactions, including FHA-to-FHA streamlined refinance transactions. Below is the breakdown of FHA upfront mortgage insurance for different loan programs:

  • Purchase Money Mortgages and Full-Credit Qualifying Refinances = 2.25 percent
  • Streamline Refinances (all types) = 2.25 percent
  • HOPE for Homeowners (Delinquent Mortgagors) = 2.00 percent
  • Home Equity Conversion Mortgages (Also called Reverse Mortgages) = 2.00 percent

As a borrower, it means higher cost for you to take an FHA loan. However, FHA allows upfront mortgage insurance premium to be added to the loan amount. Hence the change in the policy wouldnt necessarily mean larger "cash to close" requirement.

Note that Annual premiums will not change at this time. The annual premiums are detailed below for FHA traditional purchase and refinance products:

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Background - We saw it coming for some time now. FHA's supplementary reserves last year fell below mandatory 2% of the loans it insures. This extra capital cushion was about 3% in early 2009, down from 6.4% in 2007. FHA has faced higher claims because of more defaults - 7.8% of the single-family mortgages are 90 days or more overdue, up from 6.6% a year earlier. To shore up their reserves, FHA  has been exploring options to increase either the Credit Score Requirements, Down Payment requirements or Insurance Premium or all 3 of them. At this time they have settled with announcing chanes only to the Upfront Mortgage Insurance requirements. But the other two changes are not completely ruled out later in the year, if FHA continues facing higher default rates.

Just last week,  FHA had temporarily waived flipping requirements.

If you are a California First Time Home Buyer and/or want to know how the recent changes to FHA guidelines will impact you, please call me at 408.905.6261 or email me at shashank@arcuslending.com

 

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Shashank Shekhar

Mortgage Broker/Banker | San Jose, CA

(408) 615-0655 | Shashank@ArcusLending.com

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Comment balloon 2 commentsShashank Shekhar • January 21 2010 03:00PM

Comments

I think there will be some more changes to come as well as the year progresses

Posted by Gene perez (Greater Mortgage Solutions & Valley Hills Realty ) over 8 years ago

Totally agree. Changes to Downpayment requirement, minimum credit score and even reducing seller credit are the options FHA is looking at.

Posted by Shashank Shekhar, San Jose, CA Mortgage Broker/Lender (Arcus Lending) over 8 years ago

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