Keller Williams Realty Atlanta – Peachtree Road

What Is Changing in the FHA World?
 
Effective October 4, 2010, FHA will be making changes to their Mortgage Insurance Premiums.  As you know, borrowers currently pay 1.75% of their loan amount upfront which is called Upfront MIP.  Additionally they pay .50% to .55% of their loan amount annually (actually paid in 12 installments with their monthly payment).
 
The new MIP structure will require an Upfront MIP of only 1% of their loan amount.  The downside is that their annual MIP will increase to .50% to .90% paid on a monthly basis.
 
Give Me An Example of How This Impacts The Wallet
 
Here is an example of how the changes will impact FHA borrowers:
 
Loan Amount:  $250,000
 
Upfront MIP:   Currently                     $4,375
                        As of October 9, 2010 $2,500
                        Upfront cost is $1875 less BUT when the homebuyer sells or pays off the loan, part of this cost is refundable to the borrower
 
Monthly MIP:  Currently                     $115 per month
                        As of October 9, 2010 $188 per month
                        Cost is $876 more per year
                        No portion of this monthly MIP is refundable to the borrower
 
What Is The Real Impact?
 
When an FHA homeowner sells their home, they are entitled to a refund of the unused portion of their Upfront MIP.  The borrower is not entitled to any refund from the Monthly MIP they pay to FHA each month.  So shifting the revenue stream paid to FHA from the Upfront MIP to the Monthly MIP is actually a win for FHA as less of the MIP paid by the borrower will be entitled to a refund.
 
The IRS allows homeowners to write-off the cost of mortgage insurance as long as their income is less than $110,000 per year.  Shifting some of the MIP from Upfront to Monthly will actually give the homeowner a greater write-off on their tax return.
 
Higher monthly MIP will increase the borrower’s Debt-To-Income ratio and, in theory, make it slightly more difficult to qualify for the loan.
 
Net Effect:  I believe the net effect to the borrower is negligible.  Basically, these changes shift revenue within the government.  FHA will enjoy higher revenues to offset their tremendous losses while the IRS will decrease their revenues as homeowners have greater mortgage insurance write-offs.

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