Preapproved with FHA Financing? You Better Double Check with your Lender.

If you are currently preapproved to buy a home using FHA for your financing, I highly recommend you check with your mortgage originator to make sure your preapproval is still valid.  

Why the worry?  FHA will have higher mortgage insurance rates effective with new loans (case numbers issued as of) April 9, 2012.  How much somebody is preapproved for is based on their debt to income ratios, which includes the proposed new mortgage payment.

Based on the scenarios I used on my post announcing these changes, a loan amount of $417,000 would see an increase in payment of $48.95.  For a borrower who’s currently maxed out on their debt to income ratios (DTI), this could reduce their borrowing power by about $10,500.  FHA “jumbo” borrowers are hit extra hard with FHA’s additonal tax fee, my previous post for a loan amount based on the Seattle FHA loan limit of $567,500 has an increase in payment of $183.85. For the borrower pushing their DTI, $183.85 increase in monthly payment pencils out to $39,700 in less home someone will qualify for.

Even if your preapproval letter states it’s valid until a certain date beyond April 9, 2012, it is subject to “changing market conditions”. Your scenario is not “locked in” or approved until you have a signed around contract that you’ve submitted to your lender to complete your loan application. Changing mortgage rates and property taxes also impact how much you qualify for.

Your mortgage originator can (and should) review your current preapproved scenario and plug in the mortgage insurance rates to determine how much your payment will be going up and to see if it impacts how much you’re preapproved for. 

If you are considering buying or refinancing a home anywhere in Washington State, I’m happy to help you! Please click the links at the top of this page for a rate quote or to apply.

PS: This also impacts home owners who are considering refinancing from a non-FHA loan to an FHA or who are doing a credit qualifying (full doc) FHA streamlined refinance.

FHA to Reduce Mortgage Insurance Rates for some FHA Streamlined Refi’s

Today HUD announced that beginning June 11, 2012, FHA will REDUCE the cost for an FHA streamlined refinance for FHA insured mortgages that were originated prior to June 1, 2009. A mortgagee letter will follow to make the following changes official:

Upfront mortgage insurance (UFMIP) will be reduced to 0.01% (from 1.00%).

Annual mortgage insurance (typically paid monthly) will be reduced to 0.55% (cut in half from 1.10%).

This is great news to those who originated their FHA loans prior to June 1, 2009. Once I receive the mortgagee letter from HUD, I'll be sure to update you.  We'll need clarification on how HUD defines "origination".  UPDATE:  FHA's Mortgagee Letter clarifies that loans must be "endorsed" by HUD prior to June 1, 2009.  This is different than your closing date and typically takes place weeks after closing.

FHA streamlined mortgages are popular right now considering today's low mortgage rates and that they do not require an appraisal. 

Currently, a Seattle area home owner doing an FHA streamlined refinance with a loan amount of $400,000 and credit scores of 720 or higher would have a rate of 3.750% (apr 4.449) with a principal, interest and mortgage insurance (PIMI) payment of $2,234.59.  With the proposed reduced FHA mortgage insurance, assuming the home owner originated their FHA loan prior to June 1, 2009, their PIMI payment would be $2,034.45 (apr 4.071): a difference of $200 per month!

If you would like more information about refinancing your FHA insured mortgage for your home located anywhere in Washington, please contact me.  I have been originating FHA insured mortgages for Washington home owners since April 2000 at Mortgage Master Service Corporation and I'm happy to help you.

UPDATE 3/6/2012: INFORMATION ON HUD'S MORTGAGEE LETTER. 

Reader Question about FHA Mortgage Insurance

I received this email this past week while I was on vacation.  Right now I am licensed for loans only in Washington State and I don’t always have enough time left in the day to answer the questions or request for advice that I receive from readers who are located outside of my current “lending boundaries”…although I do try.  Sometimes a question or email makes a good post because it may help others who read this mortgage blog. 

Hi Rhonda, I read your blog all the time and I’m in need of advice from someone who knows their stuff — unfortunately im not in WA anymore so I can’t use you and I can’t get a straight answer out of my broker.

I am going with an FHA loan but I expect to be able to pay 20% of the principal within five years. What is not clear to me is if MIP on FHA loans can be removed *without* refinancing — i.e. just based on having paid 20% of the loan amt. I read something on the FHA site that said that this can be done only if the upfront MIP is paid at closing — I am trying to figure out if that means cash as opposed to rolling it into the loan.

Every time I’ve attempted to get an answer from my brokers they keep talking about refinancing in a few years and house appreciation — I really want to know the deal in case I CAN’T refi (due to market tanking or rates climbing, for example)

Advice is very very much appreciated.

FHA insured loans have mortgage insurance regardless of down payment or equity until two qualifications are met:

From HUD’s Mortgagee Letter 00-46:

Regardless of the computed loan-to-value ratio, all but 15-year term mortgages will have annual premiums for the greater of five years or until the amortized loan-to-value reaches 78 percent; there is no annual premium on 15-year term mortgages with initial loan-to-value ratios less than 90 percent.  All other mortgages with terms greater than 15 years, regardless of the initial loan-to-value ratio will have annual premiums for the greater of five years or until the amortized loan-to-value reaches 78 percent.  If a computed loan-to-value ratio is not possible, due to missing data or previous refinancing without an appraisal, the new loan-to-value will default to 89.99 percent.

If a borrower elects to make additional payments towards principal, they may request the monthly mortgage insurance payment be removed only after 60 payments have been made with no late payments in the last 12 months.

Those loans reaching the 78 percent loan to value threshold sooner than projected (but not sooner than five years from the date of origination except for 15-year term mortgages) due to advanced payments of principal will have the annual premium collections canceled upon the servicing lender submitting supporting information to FHA following the borrower’s request provided that the borrower has not been more than 30 days delinquent on the mortgage during the previous twelve months.

Whether or not you elect to pay your upfront mortgage insurance as a closing cost (cash) or finance it, is up to you.  It will not help expedite the removal of your monthly FHA mortgage insurance.

One of the present benefits with an FHA loan is the ability to refinance without an appraisal.  If the market tanks and homes continue to depreciate, as long as you can obtain a rate with a lower rate (the refinance must make sense), you can do an FHA streamline refinance.  I say “present” because we are in a climate where guidelines are changing….even for FHA.

Thanks for your question and for reading The Mortgage Porter.

EDITORS NOTE: FHA guidelines for mortgage insurance is changing in 2013. Please check current guidelines.

Private Mortgage Insurance Termination

Private mortgage insurance (pmi) is used when a borrower has less than 20% down or home equity in their property.  PMI insures the lender in the event of a borrower defaulting on a mortgage–it does not provide insurance to the home owner.

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