Last week HUD issued 2 new Mortgagee Letters that will have a major impact for many homeowners and prospective homebuyers.
The first one was Mortgagee Letter 2013-04
This mortgagee letter revises FHA policies on when annual Mortgage Insurance Premiums (MIP) can be cancelled as well as increasing the annual MIP, which you can read about in FHA Increasing Annual Mortgage Insurance, Again.
Currently FHA’s annual MIP can be cancelled no earlier than 5 years and when the outstanding principal balance reaches 78% of the home’s value as determined by the last appraisal or purchase price. Currently a homebuyer who purchased a home for $100,000 and put 3.5% (the FHA minimum) down would pay $100.52 per month in annual MIP. On average, the homeowner would pay that annual MIP for 100-110 months.
The new guideline is effective for all mortgages with an FHA Case Number assigned on or after June 3, 2013. The new guidelines are:
FHA will collect the annual MIP for the maximum duration permitted under statute.
- For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP)) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.
- For any mortgage involving an original principal obligation (excluding financed UFMIP) with a LTV greater than 90 percent, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.
In layman terms,
If the Loan to Value Ratio (LTV) is less than or equal to 90%, FHA will collect the annual MIP for a minimum of 11 years or the end of the mortgage term, whichever occurs first.
If the Loan to Value Ratio (LTV) is greater than 90%, FHA will collect the annual MIP for the entire term of the mortgage.
FHA collection of annual MIP
| TERM | LTV (%) | PREVIOUS | NEW (6/3/2013) |
|---|---|---|---|
| ≤ 15 yrs | ≤ 78% | No annual MIP | 11 years |
| ≤ 15 yrs | > 78% - 90.00% | Cancelled at 78% LTV | 11 years |
| ≤ 15 yrs | > 90.00% | Cancelled at 78% LTV | Loan Term |
| > 15 yrs | ≤ 78% | 5 years | 11 years |
| > 15 yrs | > 78% - 90.00% | Cancelled at 78% LTV & 5 yrs | 11 years |
| > 15 yrs | > 90.00% | Cancelled at 78% LTV & 5 yrs | Loan Term |
Instead of paying the annual MIP for 100-110 months, which equates to $10,052 to $11,057.20 in the example above, that homeowner would be paying the annual MIP for the entire 30 years, which amounts to $29,787.20. A huge difference.
Long story short, if you are in the market for an FHA mortgage, whether you are a homeowner seeking to refinance or a homebuyer looking to purchase a home, you have less than 4 months to act before you are subject to this guideline.
If you would like to explore your options with an FHA mortgage please complete the FHA Rate Quote Request Form and we can discuss your situation.
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