Changes to FHA Loans - What It Means For Tucson Homebuyers
Today, July 14th, changes go into effect regarding FHA financing.
Before today, there was a flat up-front fee when you got an FHA loan - called the mortgage insurance premium (UFMIP - UpFront Mortage Insurance Premium). It was set at 1.5% of the loan amount, and most people just added that on top of the loan amount, they financed the MIP.
Also before today, there was a monthly charge, at 0.5% annually, called mortgage insurance (or MI) that an FHA home buyer paid. So on a $200,000 loan: 0.5% of that is $1000, then divide by twelve as that’s an annual figure, and we get an $83.33 MI payment per month, added to your monthly mortgage payment.
This is not the case anymore. As of today, pricing will be risk-based. That means the bigger risk you are as a borrower, the worse your credit is, the more you’ll pay. Because people that are bigger risks tend to default on the loans more, so they get charged more to get a loan.
Now, the up-front MIP will range from 1.25% to 2.25% - remember, that’s the one time fee paid at closing that most people just roll into the loan amount. On a $200,000 loan, that means the up-front MIP would range from $2500 to $4500.
The monthly mortgage insurance will vary to, ranging between 0.5% and 0.55%. That amount will be determined by the loan to value ratio - that is, it will be determined by how big your down payment is.
My friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front MIP they have to pay.
So what does that mean for the local Tucson home buyer? Well, if you’re getting an FHA loan, it may cost you more to buy a home, depending on your credit score. If you’ve been approved for an FHA loan in the past couple months, it may be time to head back in for another chat with the lender, to see what kind of pricing you’ll have for that FHA loan.
