FHA is really an insurance program designed to insure loans against default. As a result, FHA opporates with a safety pad of resources. The recent increase in foreclosures has seriously reduced that pad (also see the earlier post titled “FHA Funds Plentiful, For Now”). FHA is insuring nearly 30% of all loans being funded. So the demand is high and the saftey resources are low. So how can FHA bring their reserves back in line to mandated levels? They can raise fees charged to new borrowers.
Right now, when you get an FHA loan you’re required to put 3.5% down and you pay an Upfront Mortgage Insurance Premium (UFMIP) as well as a monthly mortgage premium. Some argue that by increasing the amount the client must put in through down payment or the UFMIP you’ll increase the borrowers motivation to stay current and try to keep the home.
In a recent CNN article, HUD’s Shaun Donovan discussed 3 options being considered to accomplish this. Increase the down payment to 5%, increase the UFMIPfrom 1.755 to 3%, or decrease the allowable seller concessions from 6% to 3%.
the net result of all of these will be more “skin in the game” for the buyers and potentially increased revenue for FHA to rebuild their greatly needed reserves. What should you do? If you’re on the fence about buying be aware of these changes and how they might affect you. You may be able to save a great amount of money by planning ahead.
Jeremy Beck | Mortgage Planner | Jeremy@GreenMeansGrow.com