Your Certified Mortgage Planner — Michael Eiden, Mortgage Blogger

If you haven’t heard… FHA borrowing costs are going up! (per Mortgage Letter 10-02)

Effective for FHA loans for which the case number is assigned on or after April 5, 2010 (here’s a hint, try and beat the deadline!), FHA will collect an upfront mortgage insurance premium of 2.25 percent. This policy change will increase premiums for purchase money and refinance transactions, including FHA-to-FHA credit qualifying and non-credit qualifying streamlined refinance transactions.

Here’s what it means in real dollars and sense. Let’s say you get a loan for $175,000. As of right now, the upfront mortgage insurance would be $3062.50. After the deadline of April, 5th 2010 that will increase to $3,937.50. You will save yourself $875 by getting off the fence and getting your application in. You need to have your loan officer submit your case number to FHA BEFORE April, 5th 2010. After that… it’s too late.

If you are looking to get an FHA loan, call or email me to get pre-approved BEFORE the deadline. Not looking to get a loan? Do your friends a favor and pass this post on to those that are. Thanks!

The Federal Housing Administration (FHA) insures about 30 percent of new loans, and its health is vital for the housing market.  But as foreclosures have risen, the government agency has seen its losses rise and its reserves sink below the minimum level required by Congress.

According to the Mortgage Bankers Association (MBA) more than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans. In addition, some unscrupulous operators have shifted their business to the FHA after the subprime business went bust. Last week, the FHA served subpoenas on 15 mortgage companies with suspiciously high default rates for FHA loans, part of a broad crackdown on dubious lenders.

To address the problems, the FHA announced policy changes designed to more revenue into the agency, while at the same time keeping loans available.  The changes include:

1)  Homebuyers will Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent.  FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge. Borrowers will still be able to wrap these fees into the total amount borrowed.

2)  Homebuyers will need a credit score of at least 580 to qualify. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.  It’s important to note that even thought FHA has increased the score to 580, most lenders have something called investor overlays and almost all lenders require a 620 FICO score.

3)  Another significant change will be to reduce allowable seller concessions from 6% to 3%. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

You can view the entire press release from HUD here.