FHA is lowering their upfront MIP to 1% as of October 4th,2010!  The bad news is that they are INCREASING the MIP renewal from .55% to .90%, which, in purchasing terms, will decrease the buying power of your buyers by approximately $7500 from their maximum purchase price.

 

See below illustration:

 

  • Up front mortgage insurance will decrease to 1.0% for all amortization terms
  • Annual premiums will increase on amortization terms >15 years to:
    • .85% on LTV’s <95%
    • .90% on LTV’s >95%

Old MIP vs. New MIP illustration

Based upon a loan amount of $200,000 @ 4.5% rate @ 30-year @ 96.5% LTV:

 

(*The Borrower Pays $45 more per month which translates into a negative $7,500 in buying power.)

However, if home is sold at year 7:

 

[*FHA gets $2,102 MORE in MIP but principal balance is $2,175 less, so at year 7, it's basically a "wash". (the same calculation for 5 years, same deal.)]

Bottom line, FHA gets MORE, but the buyer builds up more equity.

As of right now, the MI is still deductible on income taxes (sunset on December 31, 2010).

Just a reminder, that the MI drops off after it reaches 78%, or approximately 10 years!

 

Please contact me with any questions!

John Longstreet, Loan Officer

20 Years Experience in the Mortgage Industry!