FHA to Implement Policy Changes

Congress passed H.R. 5981 a few days ago. This bill allows FHA to change some policies and guideline in regards to issuing loans to home buyers. The main changes are as follows:

1. The upfrom mortgage insurance premium will be REDUCED from 2.25% to 1.0%. This is great news, right. Well hold on for a minute....

2. The monthly paid MIP rate which currently has a cap of .55% of the loan amount divided by 12 months, will now have a cap of up to 1.55%. This is where the impact come in.


Most home buyers using an FHA loan have little cash at hand. The typical buyer can come up with the required 3.5% downpayment and not much else. Usually the buyer asks the seller for "help" with their closing cost and right now the seller is allowed to "help" up to 6% of the purchase price. This may seem like a lot, but Maryland's fees and taxes for purchasing a home are some of the highest in the US. The upfront MIP is allowed to be rolled into the loan amount, so the buyer has never had to tackle this expense right out of their pocket with cash, it has always just increased their monthly payment marginally.

Now, however, the monthly MIP will be increasing the monthly payment for all buyers. These changes are set to effect FHA case numbers issued after September 7th, 2010. For an example of how this would effect a buyer, go to : http://www.allhomes4me.com/ and click on current real estate news.