St Paul, MN: FHA mortgage loans
are due on June 3rd, 2013 to make a significant change that is driving more clients to conventional loans. New FHA loans after that date that have less than a 10% down payment or equity for a refinance, will now have mortgage insurance for the life of the loan. Currently FHA mortgage insurance goes away once the loan is paid down to 78% of the original value.
, a Senior Mortgage Loan Officer with Mortgages Unlimited in St Paul, MN., said clients currently in the process who can afford a slightly higher down payment of 5%, versus FHA’s 3.5% minimum down payment are all going with a conventional loan.
He further indicated that it is a pretty simple choice. The difference between 3.5% down, and 5% down for many isn’t much money. But the dramatically higher monthly mortgage insurance, high initial up-front mortgage insurance premium, and now mortgage insurance for life has killed FHA for all better qualified home buyers, leaving only those with weaker credit to need an FHA Loan.
The major reason FHA has increased the costs is an effort to replenish their default pool of money because of recent losses due to the market crash. But now less and less people are taking FHA loans. The pool of FHA clients will no longer have a blend of strong and weak buyers, they will only have weak buyers – resulting in a more risky pool. Something that got them into trouble to begin with.
Those with excellent credit can sometimes even obtain a 3% down conventional loan.
The new rule also effects the popular FHA Streamline Refinance. Those refinancing their FHA loan will now have PMI for at least 11-years if they are 90% loan-to-value or better, or life of loan if over 90% loan-to-value.
The trend toward conventional had already started over the past few years as FHA made several increases to the cost of their loans with higher mortgage insurance rates. The “life-of-loan” requirement starting June 3, 2013 is the proverbial straw in the camels back for many home buyers.