Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

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FHA Mortgage Insurance for Life?

Orange County, CA – The Federal Housing Administration (FHA) recently announced that they would be increasing their monthly mortgage insurance payments once more on new FHA backed loans. The monthly FHA mortgage insurance rate is anticipated to increase by 10 basis points in the coming months. Despite this, there has been other news from the FHA which has been less accessible is likely to have an enormous impact. The big news is that the FHA is planning to eliminate mortgage insurance removal on any loans that are taken out after this coming spring.

If this change is made it will mean that any new FHA borrowers will have to pay FHA mortgage insurance for the entire loan period. The existing rule states that borrowers only need to reach a 22% equity level in their home after they have maintained the mortgage insurance for a minimum five year term before they can arrest their FHA mortgage insurance payments.

The main reason why these measures are being implemented is because the Federal Housing Administration is losing a considerable amount of money. They are bleeding badly and Congress is pressing for change.  The Federal Housing Administration has recently released its end of year figures, posting a $16.3 billion deficit.  As with any other business, action has to be taken to curtail such alarming slides. With few options, the Federal Housing Administration has resorted to increasing rates. This will serve multiple purposes. First, it will boost revenue. Second, it will deflect more business back to private lenders such as banks and credit unions. Naturally, this isn’t good news for those buyers who need the flexibility that the FHA loan program offers.  But there is a silver lining to the news.

At present, these are just recommendations made by the FHA. The writing on the wall is that these changes will be made. But we may have a window of opportunity between now and the spring within which we can fulfill loans under the existing FHA guidelines. Those who can will dodgethe potential of having FHA mortgage insurance for the life of their loan.

Of course, these changes may come too soon for some people, which is why we have to look at some alternatives. At the moment, the best alternative might well be to go for a low down payment conventional loan. These loans require as little as a 3% down payment. There are pros and cons to both routes, but there’s no doubt that having to pay mortgage insurance is tough at the beginning of a loan – let alone for the duration!

So what can you do? Review your available loan options right away. If and FHA loan is the best option for you then don’t delay. Arrange your loan before these discussions become full fledged rules. Contact me with your FHA questions or to seek additional options.

Scott Storace

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