Mortgage options changing in April

Change is in the air this spring for future homeowners. The big news is that the Federal Housing Administration, or FHA, is increasing their monthly mortgage insurance premium 10 basis points from 125 to 135, and attaching it to the loan for life. Currently the basis points on an FHA loan for the monthly mortgage insurance are 125, and the mortgage insurance can be removed from the loan after five years of ownership and an appraisal showing at least a 78 percent loan-to-value ratio. The FHA loan limit for Orange and Seminole counties is $353,750, and the conventional loan limit for these same areas is $417,000. Buyers purchasing homes of values higher than this typically opt for one jumbo loan with an average down payment of 20 percent. So the FHA changes don’t have much impact on buyers and sellers outside of the aforementioned price ranges.

But, for those would-be FHA borrowers currently on the hunt for their dream home, it behooves them to act now and get under contract with an FHA case number prior to April 1, 2013. Let’s use a purchase price of $330,000 as an example. FHA will have an upfront mortgage insurance premium, or MIP, of 1.75 percent of the loan amount that is typically financed into it, with 125 basis points monthly premium on loans when the buyer places 3.5 percent down for a term greater than 15 years. Currently the MIP on that $330,000 loan would cost the borrower $329.06 per month, and the borrower would have the option to remove it after five years of ownership with an appraisal showing at least 22 percent equity in the home. After April 1, the monthly basis points increase to 135 making the MIP payment on the same $330,000 loan $355.38. Other than the monthly increase in their payment, borrowers will now have to make that MIP payment for life. This is a pretty big change.

The silver lining in the mortgage market playbook is that more conventional loans are allowing 3 and 5 percent down payments to qualified buyers. Now that the housing market is showing increased stability, conventional loans are offering products to consumers with down payment amounts that compete with the FHA minimum down payment of 3.5 percent. Borrowers who go for the FHA loans have done so historically for the lowered down payment and the more flexible debt-to-income ratio. “The debt-to-income ratio ceiling for conventional loans is pretty firm at 45 percent, while FHA generally allows ratios into the mid 50s,” said Scott Bowling of REMN in Maitland.

The winds of change will continue to blow for future homeowners. The difference now versus a few years ago is the housing market’s increased stability, overall growth and options to buy conventional at lowered down payments.

Christina Rordam is a local Realtor. Contact her at 407-928-8294 or ChristinaSellsOrlando.com