Get Your Low FHA Loan Rate Now, FHA Closing Costs to Rise Soon
By: Rosemary Rugnetta
August 27, 2010 (FreeRateUpdate.com) – Earlier this month, the Senate approved legislation that allows the Federal Home Administration (FHA) to increase the monthly mortgage insurance premiums charged to its borrowers. The law is not intended to affect existing loans guaranteed by FHA. Currently backing 30% of all home mortgages, FHA is finding that they must raise borrowers’ costs in order to successfully continue running their program of guaranteeing home loans. For anyone anticipating an FHA loan, it is time to get your low FHA loan rate now, since FHA closing costs will soon be rising.
FHA mortgages are the most popular option for first time home buyers. Beginning October 4th, the FHA monthly mortgage insurance premium will be changing. Currently at .55%, it will be increasing to .85% for a mortgage with a loan to value up to and including 95% and up to .90% for a mortgage with a loan to value above 95%. Approved legislation leaves a lot of room in that it allows FHA the ability to raise the MIP as much as 1.55% in the future. With this increase, FHA has stated that they will be dropping the upfront mortgage insurance premium from 2.25% to 1.00% of the loan amount. This upfront premium can still be rolled into the mortgage amount. On a $100,000 mortgage, this increase in monthly MIP translates to an increase of approximately $22.45 added to a borrower’s monthly mortgage payment depending on the LTV of the loan.
In order to improve the quality of it’s insurance portfolio, FHA has proposed several other changes to it’s program although an effective date has not been announced. These proposals include reducing seller concessions to 3% from the current 6%. Sellers currently are allowed to kick in 6% of the price of the home for closing costs. FHA is proposing this change in order to eliminate sellers from raising the price of their homes to cover these costs. This change would have its greatest impact on builders of entry level homes who rely heavily on seller concessions. Without the current full seller concessions, a buyer will need 6.5% down payment for an FHA loan.
Another proposed change is to require higher down payments for lower credit score borrowers. FHA has long been known for not considering credit scores when approving a loan. The new proposal will required that credit scores below 580 will require a minimum down payment of 10% with 500 being the minimum acceptable credit score. This proposed change may not have a big impact since many lenders will not consider any type of loan with a credit score below 620.
The FHA loan rate is currently very low at 4%. For borrower’s who are looking to purchase a home, it is time to put this into action considering the amount of time it will take to document, underwrite and close the loan. Those with FHA case numbers prior to October 4th will not be affected by the increase in the monthly mortgage insurance premium. With no one knowing if and when rates will go higher, now is the best time to get your low FHA loan rate before FHA closing costs rise early October.