Checking The Pulse Of The Kansas City Real Estate Market

So in addition to the possibility of Fannie Mae being put out of her misery (and ending conventional loans as we know it), now it’s announced that FHA loans will have 1/4 percent higher annual mortgage insurance premiums. This is guaranteed to lower the volume of FHA loans once the increase is put into effect in April. The FHA change directly affects borrowers getting an FHA loan while making less than a 5% down payment. Of course, that’s the majority of borrowers who often choose a FHA loan because it only requires a 3.5% down payment.  If you’re already approved for a FHA loan but have yet to go under contract, I suggest you get up and shake a leg.

The 1/4 percent increase comes from a jump from a 0.90% mortgage insurance premium (MIP) on these loans to 1.15% MIP. The jump is based on the loan amount. These changes are designed to keep FHA loans alive during a time when the agency is battling foreclosures on the books. The change is expected to generate more than $2 billion in funds for FHA and help the agency meet the congressional mandate to have 2% cash in reserves. While the news is certainly not good, allowing the FHA loan program to fail would have terrible consequences on our real estate market. Keep in mind that more than half of the loans being provided to home buyers today are FHA loans.

I ran some rough calculations and this change would increase the payment on a $150,000 loan about $30 or so per month.  That may not seem like a lot but it’s $360 year, so it will have an affect. If the loan amount were $300,000 the figure would double. Despite the changes, FHA is still a cost-effective loan for borrowers and will continue to be a leading loan options for first time buyers, buyers with lower incomes and buyer’s who have less than the 5% down payment required on conventional loans. Another note I found interesting was that FHA will not provide a refinance loan if the refinance does not reduce the borrowers monthly mortgage obligations by at least 5%. That seems like a solid, common-sense rule to me.

Posted by Jason A. Brown