FHA Upfront Mortgage Insurance to Increase in April

It is truly unfortunate that this spring we’re going to add yet another obstacle to economic recovery by making it tougher for first-time home buyers to get loans by increasing the amount they have to pay for upfront mortgage insurance and cutting sellers’ contributions for closing costs.

Effective on FHA insured loans with case numbers assigned April 5, 2010 or later, the upfront mortgage insurance premium will increase. FHA insured mortgages for purchases and non-streamline refinances will increase from 1.75% of the base loan amount to 2.25% and streamlined FHA refinances (refinancing an FHA underlying mortgage) will increase from 1.5% to 2.25%.

Additionally, the following changes will also take place with FHA insured loans in early summer:

• Increasing the down payment requirements for lower credit scores (risk based underwriting).   The HUD Press Release states that those with a 580 score would need a minimum of 10% down payment.
• Seller contributions towards allowable closing costs reduced from 6% to 3%.

Raising out-of-pocket expenses and raising monthly mortgage payments is going to push even more potential buyers out of the market, at a time when the economy, the building industry, taxpayers and local governments could use a boost from increased residential construction. Most critically, the upfront mortgage insurance premium increase will go into effect just 25 days before a home buyer needs to be “in contract” to qualify for the home buyer tax credit.