FHA Mortgage Insurance Increasing in April

March 24, 2011 by 4 Comments

NOTE: I originally published this article in February when HUD published the Mortgagee Letter. However with the increase to mortgage insurance on FHA insured loans just around the corner, I thought I should re-post this. If you are purchasing a home or refinanacing using an FHA insured loan, you will want to be in contract and have your loan application complete no later than April 13, 2011 to insure having an FHA Case Number issued in time.

Yesterday HUD issued Mortgagee Letter 11-10, making it official that FHA annual mortgage insurance will increase another 0.25% basis points on case numbers issued on or after April 18, 2011. The annual mortgage insurance is included in the monthly mortgage payment. There is no change (at this time) to the upfront mortgage insurance which is paid for at closing (typically financed or may be paid as a closing cost). This is in line with the Obama Administration's plan for reforming mortgages which was revealed on Friday.

HUDmip

Here's how this will pencil out for a 30 year fixed mortgage based on a sales price of $400,000 with a minimum down payment of 3.5% (base loan amount of $386,000).

FHA mortgages with a case number issued prior to April 18, 2011 (current as of this post):

386,000 x .90% = 3,474/12 months = $289.50.

FHA mortgages with a case number issued April 18, 2011 or later:

386,000 x 1.10 1.15% = 4,246 4,439/12 months = $353.83 $369.92

Difference in monthly payment: $64.33. $80.42

This will also impact FHA 203k rehab loans.

Remember, FHA annual mortgage insurance remains on the loan for a minimum of 60 payments regardless of loan to value. Even if a home buyer is putting down 20% towards the purchase of their Seattle area home, they will still have FHA mortgage insurance. FHA mortgage insurance will also remain on the home until the loan balance reaches 78% of the loan to value based on the original appraised value or purchase price of the home (which ever was less).

I have been originating FHA insured loans for the past eleven years at Mortgage Master Service Corporation (a Direct Endorsed HUD approved lender). I am licensed to originate mortgages for homes located in the State of Washington. If I can help you with your mortgage needs, please let me know!

Filed Under: FHA, Mortgage Insurance

Your Mortgage Insurance may be a 2010 Tax Deduction

February 16, 2011 by Leave a Comment

Did you know that mortgage insurance premiums you paid during 2010 may be tax deductable?  This is eligible for mortgage insurance contracts that were issued after 2006 for the use of purchasing your home (primary residence or second home) and is not limited to what you may traditionally think of as "private mortgage insurance". 

Qualified mortgage insurance may include:

  • private mortgage insurance (may be paid monthly, lump sum at closing or both)
  • FHA annual mortgage insurance (paid monthly)
  • FHA upfront mortgage insurance premium (paid upfront at closing)
  • VA Funding Fee (paid upfront at closing
  • USDA Guarantee Fee (similar to a funding fee; paid upfront at closing)

Qualified mortgage insurance is reported in box 4 on your 1098 Mortgage Interest Statementwhich you should have received from your mortgage servicer (who you make your mortgage payments too).  This deduction is treated essentially the same as deductible mortgage interest.   You will need to file an itemized tax return in order to claim this deduction.  If your adjusted gross income is more than 109,000 ($54,000 if married filed separately) you cannot claim this deduction.   You can refer to Line 13 (of the Instructions for Schedule A of the 1040 (on page 7) and IRS Publication 936 more information.

Remember, please seek the advice of your tax professional or CPA.  I am licensed to originate mortgages on homes located in Washington State. 

Related post: 

Mortgage Insurance Tax Deduction Extended (again) through 2011

Are Mortgage Points Tax Deductible?

Filed Under: Mortgage Insurance

FHA Mortgage Insurance to Increase in April

February 15, 2011 by Leave a Comment

Yesterday HUD issued Mortgagee Letter 11-10, making it official that FHA annual mortgage insurance will increase another 0.25% basis points on case numbers issued on or after April 18, 2011.   The annual mortgage insurance is included in the monthly mortgage payment.  There is no change (at this time) to the upfront mortgage insurance which is paid for at closing (typically financed or may be paid as a closing cost).  This is in line with the Obama Administration's plan for reforming mortgages which was revealed on Friday.

HUDmip 

Here's how this will pencil out for a 30 year fixed mortgage based on a sales price of $400,000 with a minimum down payment of 3.5% (base loan amount of $386,000).

FHA mortgages with a case number issued prior to April 18, 2011 (current as of this post):

386,000 x .90% = 3,474/12 months = $289.50.

FHA mortgages with a case number issued April 18, 2011 or later:

386,000 x 1.10% = 4,246/12 months = $353.83

Difference in monthly payment: $64.33.

This will also impact FHA 203k rehab loans.

Remember, FHA annual mortgage insurance remains on the loan for a minimum of 60 payments regardless of loan to value.  Even if a home buyer is putting down 20% towards the purchase of their Seattle area home, they will still have FHA mortgage insurance.   FHA mortgage insurance will also remain on the home until the loan balance reaches 78% of the loan to value based on the original appraised value or purchase price of the home (which ever was less).

I have been originating FHA insured loans for the past eleven years at Mortgage Master Service Corporation (a Direct Endorsed HUD approved lender).  I am licensed to originate mortgages for homes located in the State of Washington.  If I can help you with your mortgage needs, please let me know!

Filed Under: FHA, Mortgage Insurance

FHA 5/1 Adjustable Rate Mortgage

February 2, 2011 by Leave a Comment

FHA ARMs are extra special in my eyes.  I like that they have very low caps limiting how much they can adjust after the fixed rate period is over.  Plus, FHA loans may be assumable to a qualified borrower in the future should you decide to sell your home.  Today's fixed rates have about a 1 point difference between a 30 year and a 5/1 ARM, but with a 1% rate cap, worse case scenario, the 5/1 ARM will reach today's 30 year fixed rate at it's first adjustment and keep that adjusted rate for one year.  Let's see how this pencils out. 

NOTE: for a current rate quote for an FHA ARM or any mortgage for a home located in Washington, click here.

As of 12:45 p.m. Feb.  2, 2011, based on a credit score of 720 with a sales price of $400,000 and a down payment of 3.5%, I would quote the following:

30 year fixed FHA with zero points: 4.750% (APR 5.497).  Principal, interest and mortgage insurance payment:  $2,321.16.  ($2033.69 plus $287.08 monthly mortgage insurance).

5/1 FHA ARM with zero points: 3.750% (APR 6.521).  Principal, interest and mortgage insurance payment: $2,082.58.  ($1805.50 plus $287.08 monthly m.i.). 

Based on this pricing, the difference in monthly savings with the ARM is $238.56.  Over five years, the savings is about $14,315. 

The FHA 5/1 ARM has caps of 1/1/5.  This means that the most this rate can adjust on the first adjustment date (after 60 months) is up or down 1%.  Using the scenario above, the highest the rate can adjust to is 4.75% and the lowest is 2.75%.  The rate will continue to adjust annually no more than 1% up or down for the remainder of the term or as long as the mortgage is retained.  The highest the rate can ever be 5% higher than the note rate (this is called the "ceiling").  With this scenario, that would be 8.750%; however it would take 5 years (after the five year fixed period is over) for the rate to adjust that high. 

Here's what the principal, interest and mortgage insurance (PIMI) would look like "worst case" scenario assuming your first payment is made today and the rate only adjusts upwards:

PIMI Payments from 2/1/11 – 1/1/16 at $2,082.58 at 3.750%.  (Rate fixed for 5 years).

PIMI Payments from 2/1/16 – 1/1/17 at $2,259.96 at 4.750%.  (Maximum increase in rate of 1%).

PIMI Payments from 2/1/17 – 1/1/18 at $2,454.06 at 5.750%. 

PIMI Payments from 2/1/18 – 1/1/19 at $2,650.82 at 6.750%.

PIMI Payment from 2/1/19 – 1/1/20 at $2,849.23 at 7.750%. 

MI Payment (see NOTE below) from 2/1/2020 to 1/1/2021 at $2,818.20 at 8.750% $310,638.

The rate will continue to adjust annually (on the anniversary date of the first adjustment) and will be reamortized based on the remaining term. The rate can adjust by as little as 0.125% but never more than by 1% up or down and never higher than 5% of the Note rate.

NOTE:  FHA monthly mortgage insurance drops off after the loan balance reaches 78% of the value (based on the original value of $400,000 = $312,000) and a minimum of 60 payments have been made.  Assuming all payments are made as scheduled, the home owner will reach 78% around 108 payments (9 years) with the adjustable rate mortgage.   With the 30 year fixed rate, it will actually take closer to 120 months (10 years) to reach the 78% threshold before the monthly mortgage insurance drops from the payment.  Additional payments can be made towards principal but the earliest the mi will be removed regardless of loan to value is 60 months.

The scenarios above are assuming that we finance the upfront mortgage insurance premium of 1%.  Another option is for the 1% to not be financed and paid as a closing cost…even the seller can pay for the upfront mortgage insurance premium.  At this point, Sellers can still contribute up to 6% of the sales price towards closing costs and prepaids; they cannot pay any of the down payment.  

Although my quote was based on a 720 mid-credit score.  We're currently approving FHA loans with low mid-credit scores down to 640.

The loan limits for FHA loans in King, Pierce and Snohomish County is currently $567,500 (until October 1, 2011).   

Is an adjustable rate mortgage right for you?  It depends on your personal scenario is and if you can stomach having your rate change.  The 1/1/5 caps are certainly more tolerable than the 5/2/5 caps that most conventional ARMS tend ot have.  At any rate, it's good to know what your mortgage options are.

If you are considering buying or refinancing a home located in Washington state, I'm happy to help you!

Filed Under: Adjustable Rate Mortgage (ARM), FHA, Mortgage Insurance Tagged With:

Mortgage Insurance Tax Deduction Extended (again) through 2011

January 6, 2011 by Leave a Comment

Late last month, President Obama extended the tax deduction for mortgage insurance that was set to expire 2010 through 2011.  Mortgage insurance is required when a mortgage has a loan to value of 80% or higher (or less than 20% home equity).  A majority of mortgages have mortgage insurance either with a conventional mortgage (private mortgage insurance) or with an FHA insured mortgage.

Qualified borrowers with adjusted gross incomes of up to $109,000 if married and filing jointly or up to $54,500 for single filers, may be able to deduct the mortgage insurance premiums they paid during 2011.  If the mortgage insurance is financed (as in VA funding fees, USDA guarantee fees), it may be deducted over a period of 84 months.  This mortgage insurance deduction is available for mortgages closed for purposes of January 1, 2007 through December 31, 2011 that qualify as an "home aquistion debt".

You must file an itemized 1040 to claim this deduction and your mortgage insurance premium should be reported on Form 1098you receive from your mortgage servicer.

Here is a link to IRS referencing the 2010 information.

Remember, I am licensed to originate mortgages for homes located in Washington State, including Seattle, Bellevue, Tacoma and Everett.  For more information about this (or any) income tax matters, please contact your CPA or professional tax adviser.

Related Post:

Private Mortgage Insurance Extended through 2010

Filed Under: Mortgage Insurance

One More Week before FHA Changes Mortgage Insurance Premiums

September 24, 2010 by Leave a Comment

I've written about the upcoming changes to FHA's upfront and annual mortgage insurance premiums which is effective on all case numbers obtained October 4, 2010 and later.  This impacts both purchases and refinances.  If you're considering utilizing FHA for a refinance and you're going to retain your home for more than four years, you may want to consider taking now.

Here's a comparison between the two mortgage insurance scenarios based on an FHA streamline refinance with no appraisal based on the current 30 year fixed rate of 4.250% (apr 5.013) as of today, Sept. 24, 2010, at 12:30 p.m. with a $528,695 base loan amount:

FHA mortgage insurance with FHA case number issued by October 1, 2010 or earlier:

Upfront Mortgage Insurance Premium of 2.25% = $11,895.00

Base loan amount of $528,695 plus $11,895 (most borrowers finance the ufmip) = $540,590.  Amoritzed for 30 years at 4.25% provides a principal and interest payment of $2,659.38.

Annual mortgage insurance premium of 0.55% of the base loan amount ($2907.82) divided by 12 months = $240.46.

$2,659.35 plus $240.46 = $2,899.91 principal, interest and mortgage insurance payment.

FHA mortgage insurance with case numbers issued October 4, 2010 or later:

Upfront mortgage insurance premium of 1.00% = $5,286, creating a total loan amount of $533,981.  Amortized for 30 years at 4.35% provides a principal and interest payment of $2,626.87.

Annual mortgage insurance premium of 0.90% of the base loan amount ($4758.26) divided by 12 months = $393.48.

$2,626.87 plus $393.48 = $3,020.35 principal, interest and mortgage insurance payment.

THIS IS AN INCREASE IN PAYMENT OF $120.44 PER MONTH IF WAITING UNTIL OCTOBER TO OBTAIN YOUR FHA CASE NUMBER.  

What can you do if you're considering an FHA loan?  If you're "tight" on qualifying with your debt-to-income ratios, you may want take action PRIOR TO OCTOBER.  Obtaining an FHA case number has nothing to do with when  you take your application or lock in  your rate.

If you are interested in an FHA purchase, refinance or streamline refi and your home is located in Washington state, I am happy to help you!  Mortgage Master Service Corporation is a Direct Endorsed, HUD approved FHA lender and I've been originating FHA loans for over 10 years.  Just click on the apply tab above or send me an email!

PS:  Many home owners who currently have an FHA mortgage are able to take advantage of today's low interest rates with an FHA streamline refi without an appraisal.

Filed Under: FHA, Mortgage Insurance, Refinance, Residential Purchase

FHA Making Promised Changes to Mortgage Insurance Premiums

August 5, 2010 by Leave a Comment

UPDATE August 10, 2010:  HUD just announced they are delaying the changes to FHA mortgage insurance until case numbers issued on or after October 4, 2010.

Federal Housing Commissioner David Stevens has issued a "Special Edition" press release confirming that FHA mortgage insurance will be adjusting  on all case numbers beginning next month.  

"It is our intention that effective on September 7, 2010, FHA's upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortizing terms greater than 15 years…"

Currently upfront mortgage insurance on an FHA insured loan is 2.25%.  Effective on new case numbers September 7, 2010 October 4, 2010 and later, the new upfront mortgage insurance premium will be 1.00%.   On a $400,000 loan the 2.25% premium pencils out to $9,000 which is typically financed (added to the FHA base loan amount); in a month the upfront premium will be reduced to $4,000.

At first, this sounds great–however, there's a trade-off.  The annual mortgage insurance (paid monthly) is increasing to 85-90 basis points (currently it's 50-55%).   An increase of 0.3% of the annual premium will increase the monthly payment (based on  a $400,000 loan amount) to $300 (0.90 x $400k =$3,600/12) from $183 (0.55 x $400k =$2,200/12) an increase of $116.47 per month.

Using an interest rate of 4.25% and a based loan amount of $400,000; it looks like this:

FHA Case Number BEFORE September 7 October 10, 2010:

$400,000 plus $9,000 = $409,000 amortized for 30 years at 4.25% = principal and interest of $2012.03 plus the annual mortgage insurance of $183 = $2,195.03

FHA Case Number issued September 7 October 4, 2010 and after:

$400,000 plus $4,000 = $404,000 amortized for 30 years at 4.25% = principal and interest of $1,987.44 plus the annual mortgage insurance of $300 = $2,287.44.

The new FHA mortgage insurance premiums have an increase in payment of $92.41 based on this example.   This impacts both purchases and refinances using FHA insured mortgages.

Stevens acknowledges that this is "short notice" however this shouldn't surprise anyone who's been a subscriber to The Mortgage Porter, this has been in the works.   A mortgagee letter is expected to follow soon.

Mortgage Master Service Corporation is a Direct Endorsed HUD approved lender.  I've been originating FHA insured loans for over ten years.  If I can help you with your mortgage needs on a home located in Washington, please contact me.

Filed Under: FHA, Mortgage Insurance

The House of Representatives Passes FHA Reform Increasing FHA Mortgage Insurance

June 11, 2010 by 2 Comments

Yesterday I was interviewed by Alan Zibel with the Associated Press about the passage of House’s FHA Reform bill which, among other things, would increase the annual FHA mortgage insurance premium.   The Senate still needs to pass their version of the bill but there is no doubt in my mind that we are going to see FHA loans become more expensive for consumers.  Congress is wanting this bill in order to “improve the financial safety and soundness of the FHA mortgage insurance program”. 

HR 5702, or ”FHA Reform Act of 2010″, gives HUD the power to triple the current annual FHA mortgage insurance premium (which is paid monthly).  HUD will offset this cost by reducing the upfront mortgage insurance premium which was increased to 2.25% in April of this year.  HUD will offset the increase in the annual monthly mortgage payment by reducing the annual premium to 1.00%.  HUD feels this is helping home owners increase their home equity by 1.25% since a majority of FHA borrowers finance the upfront mortgage insurance premium.

Currently, the annual mortgage insurance premium for an FHA loan with 3.5% down payment is 0.55% (if you’re putting down 5% or more, the premium is slightly reduced to 0.5%).  HR 5702 will allow HUD to increase the annual premium up to 1.55%.  To calculate how much this would impact your monthly mortgage payment, take the loan amount and multiply the annual premium; then divide by 12 months. 

This is how upfront (UFMIP) and annual mortgage insurance pencils out on an FHA insured mortgage today based on a loan amount of $300,000 and an estimated rate of 5.00% (this morning’s rate is much lower).  Since we’re dealing with future figures, I thought 5 was a nice round number for comparison sake.

  • 2.25% UFMIP x 300,000 = $6,750 = principal & interest payment (UFMIP + loan amount) = $1,646.70
  • 0.55% annual MIP x 300,000 = $1,650 divided by 12 months = $137.50
  • PIMI (principal, interest & mortgage insurance) payment: $1,646.70 + $137.50 = $1,784.20

HR 5702 would allow HUD to almost triple the annual premium while reducing the UFMIP.  Worse case scenario, it could look like this based on the same criteria in my last example:

  • 1.000% UFMIP x 300,000 = $3,000 = principal & interest payment = $1,626.57.
  • 1.55% annual MIP x 300,000 = $4,650/12 months = $387.50
  • PIMI payment = $1,626.57 + $387.50 = $2,014.07

A increase in payment of $229.87 for the same loan even with the reduced upfront mortgage insurance premium!  Based on using an interest rate of 5%, $229.87 per month equals $42,800 in loan amount–meaning that if the borrower only qualified for the PIMI of $1784.20; their loan amount (borrowing power) has been reduced by $42,800.

According to Alan Zibel of the Associated Press, the annual mortgage insurance premium will start off at a lower 0.9%: 

FHA officials want to raise that fee to 0.9 percent, though the bill would give them the power to hike it as high as 1.5 percent.

Even with the annual premium at 0.9%, the monthly mortgage payment (PIMI) would increase to $1,851.57.  (300,000 x 0.9% = 2,700/12 = $225 monthly mortgage insurance plus 1% UFMIP payment of $1,626.57).  This would increase the payment by $67.37 per month based on my example.

Based on HUD Commissioner David Steven’s testimony in March, their goal is to be “more in line with GSE and private mortgage insurers’ pricing”.  

Often times, I’ve recommend FHA loans over conventional mortgages requiring private mortgage insurance because even though FHA has annual and upfront mortgage insurance, the pricing and overall payment has been lower (plus many FHA loans are presently assumable).  

In my opinion, making FHA more like a conventional mortgage will impact many borrowers for the worse and delay the recovery in the housing market further.

Filed Under: FHA, Legislation, Mortgage Insurance Tagged With:
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