Posts Tagged mortgage payment

Bill allowing FHA to raise annual mortgage insurance premiums passes the House

Logo of the Federal Housing Administration.
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On Thursday the House of Representatives voted 406 – 4 to allow FHA the ability to raise the annual mortgage insurance premium they charge the borrower from the current level of 0.55% of the unpaid loan amount, to as high as 1.5%, although FHA says they intend to raise it only to 0.9%.

Currently FHA charges two mortgage insurance premiums, one which is called “Up Front Mortgage Insurance” which currently is 2.25% of the loan amount and is financed into the borrowers loan, and an Annual Mortgage Insurance Premium which is added to the monthly payment.

Here’s how this works and how the changes could affect you:

According to Zillow the median price of a home in Salt Lake County is $239,900.  With an FHA loan you will put down 3.5% on the home, so your loan amount will be $231,504.  Financing the UFMIP (Up Front Mortgage Insurance Premium) brings the loan amount to $237,712.  Currently the monthly mortgage insurance fee would be $109.  If the FHA gets it’s way the monthly insurance fee would increase to $179 under their stated increase to 0.9%.  If FHA was to increase the annual premium to 1.5% the monthly mortgage insurance fee would increase to $297 a month.

FHA has sold this to Congress as having less impact than the up front mortgage insurance.  But I don’t see how.  Financing the up front mortgage insurance fee of $5,209 only adds about $27 a month to a $231,000 loan.  Increasing the monthly fee to 0.9% increased the monthly payment $70 a month and increasing the fee to 1.5% increases the monthly payment to $188 a month.

What this is going to effectively so is decrease how much home a borrower qualifies for.  With principal, interest, taxes, mortgage insurance and home owner’s insurance it requires a household income of $63,000 a year to qualify for the $239,900 home mentioned above.  With the proposed increase to 0.9% annual mortgage insurance premium that same home buyer will only qualify for a $227,000 home.  If FHA were to raise it to the maximum allowed by Congress, the same home buyer will only qualify for a $205,000 home.

We already have a gap between the median income in Salt Lake County and the average price of a home.  According to the U.S. Census Bureau the median household income in Salt Lake County is $58,000, which qualifies for a $220,000 home under the current FHA guidelines.

So you can see that an increase in FHA fees will simply widen this gap, causing home sellers to have to discount their selling price even further for a buyer to be able to qualify for it, and thus bringing down market values of everyone’s homes even further.

This can’t be good for an economic recovery.

As I see it this is simply a way for FHA and Wall Street to further shore-up their books with the money of the American people, and our government giving them a free pass to do it.

If you would like to weigh in on this with your local Representative and Senator, you can find them here:

Utah State Senators

Find your Representative

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Mortgage rates wild ride

Stocks down. Rates down. What’s going on here?

After a bad day on Wall Street yesterday rates fell dramatically this morning only to have three upward adjustments as the day went on?  Why, a few reasons today:

1. Stocks

2. Bonds

3. Fed Funds Rate

Mortgage rates are based on bonds. When stocks are not attractive, investors move their money to bonds which pay less, but are more secure. This drives mortgage bond yields up and thus rates down. So when Wall Street had it’s worst stocks day since September of 2001 yesterday, bonds got a big boost and rates dropped almost a full point this morning to around 5.5% for a 30-year fixed or an FHA 30-year fixed.  The day began with stocks falling 1.5% and as the day went on and the Fed decided not to cut the Funds Rate again it gave investors confidence in the course of the Fed and the markets and stocks rallied to a 2.5% increase. Hence, stocks got better, bonds got worse and so did mortgage rates.

How much worse? Well still better than they were last week.  A 30-year fixed loan is still pricing around 6.00%, which is better than 6.375% to 6.50% it was last week.  If I had to guess I’d say that rates are going to continue to bounce between 5.75% and 6.375% for the foreseeable future.  The last two days could have just been a momentary blip, an anomaly like we had last February when rates fell dramatically for about half a day.

Why didn’t the Fed cut the Funds Rate?  Because they have injected $120 billion into the banking system in the past two days.  It would seem the Fed wants to make borrowing more accessible rather than simply cheaper.  This is probably a good long term move to stave-off inflation increases because more money will be available to more people which will help fuel the economy rather than simply make a limited amount cheaper to less people.

The upshot though is that it’s still a good time to buy because rates are still low. Sure, maybe not the 4.50% low of a few years back, but those days are not sure to return for quite awhile, if ever.  Rates are still at historical lows, though, and home prices are stabilizing in Salt Lake City and throughout Utah, which will make homes available to more potential buyers.  I have a payment calculator available on my website as well as an affordability calculator.  Fool around on them to figure-out how much home can be afforded as well as what the payments would be.

Also, with rates where they are at now, it might be a good time to look into refinancing an 80/15 or 80/20 loan into a single loan.  A better rate might be in place on a first, but the second is higher and the blended rate of the two is the one you want to beat to save money.  There is also a blended rate calculator on my website to figure-out what the true rate is on a combo 80/10, 80/15 or 80/20 loan.

Call me if you have any questions.  Also, I appreciate and referrals you may provide since my business is almost fully referral-based.

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