Posts Tagged ‘Federal Housing Administration’
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The cause for celebration over Federal Housing Administration lowering the upfront mortgage insurance premium is short lived. Concurrent to lowering the upfront fee is the increase of the monthly insurance premium fee.
Lowering the UFMIP from 2.25% to 1% will certainly decrease the amount of repayment. However, increasing the MIP from .55% to .90% (on loans with a down payment of 5% or less) will increase the cost of repayment significantly. The end result will be the FHA having more operating capital if the result is not a significant decrease in the number of sales due to borrowers not being able to qualify on debt-to-income ratios.
Currently, if you are purchasing a home at $200,000 (for example) with the FHA minimum down payment of 3.5% your base loan amount, prior to the UFMIP add back, is $193,000. Adding back the UFMIP, at the current rate of 2.25%, brings the loan amount to $197,343. The MIP cost per month, at the current rate of .55%, is $90.45 per month.
After October 4th 2010 the UFMIP will be only 1% meaning the loan amount including UFMIP will be $194,930 – a savings of $2413 on the purchase price. However with the new MIP rate of .90% the monthly MIP addition to the payment will be $130 – resulting in a payment approximately $40 per month higher. At that rate the savings on UFMIP ($1900) will be lost in about 4 years.
One plus is that, at least currently, MIP does have a tax benefit and the buyer should consult their tax preparer for detailed information on the tax benefits of a monthly mortgage insurance premium.
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— Ken Cook NMLS ID 208452
In 2008 the Federal Housing Administration, in a move to try and get permission from congress to insure 100% home loans, were able to get most private third party down payment assistance programs eliminated from the process. Government and civic organizations are still able to operate but some of the largest DPA companies are out of the business of helping home owners with their required contribution to the loan process. 
Since that date the only way to get down payment assistance is from generally higher priced government assistance programs or from a gift from a family member or employer. According to the HUD Handbook, chapter 2-10(C):
“Gift Funds.An outright gift of the cash investment is acceptable if the donor is the borrower’s relative, the borrower’s employer or labor union, a charitable organization, a governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers, or a close friend with a clearly defined and documented interest in the borrower.”
There is much more to it than simply having the funds available. Not only does the gift money have to exist. The paper trail, evidence of the donor’s ability to give and proof of the relationship also has to be verified. Read the rest of this entry »
— Ken Cook NMLS ID 208452