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New Changes for FHA That Everyone Should Know About

On January 26th of this year FHA officially reduced their monthly mortgage insurance premium (MIP) on all new FHA loans that are insured on or after Jan 26th, 2015.    This is great news for first time homebuyers or anyone looking to purchase a home using FHA financing.  The reduction is .5% and dropped the previous MIP from 1.35% to .85% for anyone putting down less than 5%.  If you put down more than the 5% then the reduction went from 1.30% to .80%.  If you take a $250,000 loan with someone putting down the minimum of 3.5% on an FHA loan: under the old MIP they would have paid $281.25 per month.  With the reduction they will now only pay $177.08 so the monthly savings is $104.17 or $1250 per year.

It is important to point out that this reduction is not retroactive to any current FHA loans and is only for new FHA loans insured after Jan 26th.  If you currently have an FHA loan then the only way for you to take advantage of this lower MIP is to refinance into a new FHA loan.  This can easily be done through an FHA streamline refinance.   The FHA streamline refinance program is a very simple program.  Unlike other refinance programs, this one does not require an appraisal or verification of income documents.  It also doesn’t allow your current mortgage balance to go up so some lenders will give you the option of brining in the closing costs or the lender can credit your closing costs in exchange for a slightly higher rate.  For example if you owe $250,000 and want to refinance your mortgage then your new loan amount will remain at the $250,000 so you don’t lose anything by rolling in closing costs and adding to the mortgage.  However you may have about $4-5k worth of closing costs that need to be paid.  You can simply bring these funds in and get the lowest possible rate being offered which might be somewhere in the low 3% range or you can elect for the lender to pay your closing costs in exchange for a rate in the upper 3% range.  If you currently have an interest rate above 4% then you most likely will benefit either way because you will be able to drop your MIP and lower your interest rate with your loan balance remaining the same.  This program is a great way to lower your monthly payment with very little paperwork or hassle.  Is this refinance program beneficial to everyone who currently has an FHA loan? The answer is no.  Anyone that obtained an FHA loan prior to April 18, 2011 currently has an MIP factor that is at or lower than the new factor of .85% so they wouldn’t really benefit from a refinance unless they had a high interest rate and wanted to take advantage of today’s low rates.  The other thing to consider is how long you will have the MIP on the new loan.  Anyone who took out an FHA loan prior to April 1, 2013 can eventually drop their MIP once they pay the loan down to 80% loan to value and have had the loan for at least 5 years.  However anyone that took out an FHA loan after April 1, 2013 has MIP over the life of the loan.  The only way to drop it is by refinancing into a conventional loan once you have at least 20% equity in your property.

This is all good news but as a seller you may be asking “how does this affect me”? Well this now makes your home more affordable and increases the number of people who may be able to purchase your home using an FHA loan.  It also could benefit you as a seller if you need to use an FHA loan to qualify for your next home purchase.  Any reduction in MIP is positive and healthy for the overall mortgage and real estate market.

If you have any questions about this topic please don’t hesitate to contact me. To learn more about our company and mortgage products, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email me at prioritydan@bellsouth.net. Visit us online at www.prioritylendingcorp.com

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