Unfortunately the mortgage market continues to get harder and more expensive. Below is an explanation of the moves HUD is making on FHA insured loans starting in April. The impact isn’t huge, but it’s a negative impact none – the – less and will make purchasing a home using FHA financing more expensive. Stay informed and on top of the changes:
HUD Increases Costs – Effective April
In a move to increase their financial standing (and to get the FHA back into required capital requirements), on Monday, HUD announced their anticipated increases in the premiums they charge borrowers. Simply stated, the cost of borrowing is going up.
FHA loans, by design, are more liberal in their underwriting guidelines than most conventional loan products (in terms of credit, income ratios, required investment from the borrower, and maximum loan amount). HUD is not a lender. Rather, it is a federally-insured insurance company. They insure lenders against default on loans underwritten in compliance with their published guidelines. It is because of this insurance that lenders approve and close loans with more liberal guidelines.
As an insurance company, HUD charges two types of premiums on the FHA mortgages:
The UFMIP (Up Front Mortgage Insurance Premium) will be raised effective April 1, 2012 from its current 1% to 1.75%. One advantage to the UFMIP is the fact that it is typically built into the loan amount and does not require additional cash outlay at closing. However, the increase in loan amount does impact monthly payment and cash flow.
The MMIP (Monthly Mortgage Insurance Premium) will be raised 10 basis points on April 1, 2012 to cover the requirements of the payroll tax extension approved last year. This is a direct increase of 10 basis points in the borrower’s mortgage payment, and has the effect of a 10 basis point increase in interest rates. As a kicker, loans over $625,000 will be bumped 35 basis points from today’s levels effective June 1, 2012. This bump is substantial, as you can see in the chart below.
For a larger version, follow this link: HUD Costs Chart.
On a loan amount of $300,000, we are seeing an increased payment of $36.41, which doesn’t sound too bad. However, we know that home buyers buy homes comparing what their monthly payment will be after they close. This hike in payment is equivalent to borrowing an additional $7000. Starting next month, it’s as if the home became $7000 more expensive. What is the result? Buyers are going to have to pay more OR they’re going to have to offer less to the seller (to maintain the same mortgage payment they were comfortable with today). A $7000 lower offer is like another 2.5% decline of home prices. Not good for anyone.
Sellers, price correctly and get into contract in March.
Buyers, today is the cheapest mortgage you are likely to see in your lifetime (all things considered)! Get off the fence and buy NOW!
P.S. – Rumors are strong that FHA is looking to reduce the allowable sellers’ concession from 6% to 3% in April as well. This move will have a huge impact on how much cash will be needed to buy (especially in places like NY with the NYS Mortgage Tax). Hurry—get in the game!
Mountain West Bank
NMLS # 337416
|Two Things You May Have Missed
Before the end of the year, Congress and the President agreed to extend the payroll tax cut. In that bill, there were two items of interest for those involved in real estate.
1.) The hike in the Guarantee Fees charged by the GSEs Fannie Mae and Freddie Mac.
The 10 basis point increase in the fees has translated to a .375% to .5% increase in mortgage rates for conventional loans. Many customers who started their loans a couple of months ago are being “surprised” with higher than expected rates. Heck, everything you read in the papers says rates are at historic lows and will likely stay there through 2014. Many consumers feel as if their lender is being unscrupulous. However, your lender has fallen victim to the increase in Guarantee Fees and how the secondary market is passing on the cost. What looks like possible lender greed is just a passing on of the increased expense imposed by the government. Sadly, the increased revenue isn’t even being used to help aid an ailing Fannie Mae or Freddie Mac. It is being turned over to the US Treasury to cover the temporary extension of the payroll tax cut.
2.) Permission for HUD to increase the insurance premiums they charge on FHA loans.
If you remember, HUD charges two insurance premiums – a monthly one and an up-front one that is usually added into the loan. Most recently, they reduced the up-front mortgage insurance premium (UFMIP) and dramatically raised the monthly fee (MMIP). It is widely anticipated that, maybe as soon as April, we will see a hike in the UFMIP with no adjustment to the MMIP. While this will help shore up the reserves in the insurance fund, it will simultaneously make buying a home more expensive. No one knows the effective date or amount of the increase. Buyers should look to buy before the increase in fees.
We always hear how our government officials tuck away things in their bills. In this case, while the headlines during the holidays praised Washington for preserving the payroll tax cut, they may have hurt us more in the long run.
Happy February Everyone!
Anyone else remember telling themselves back in the late 90’s early 2000’s, “I should’ve bought then!?” Well, here we go again, folks! The real estate market is rapidly shifting, and anyone with an eye on opportunity will want to read up on the state of our local progress. So, here’s an update for our area:
Our inventory shrank considerably over the past few months, and buyers were feeling the crunch with considerably less to choose from. Now, however, homeowners are seeing the unusual trend and jumping onto the bandwagon. Sellers are not waiting for spring! They’re realizing they better beat the competition, and are getting listed early in 2012.
Facts to back this up? Active listings dropped consistently from mid 2011 through December. January saw the first increase since last August: up from 2325 in December 2011 to 2849 in January 2012.
Helping this along, closed sales were up October through December 2011. Comparatively, we saw 355 homes closed in December 2011 (from 336 in 2010), and 205 homes closed in January 2012 (from 184 in 2011). For chart aficionados look here:
Maybe most importantly, the Fed just made a mega deal to help homeowners who are upside down in their mortgages in the next 12 months. This will begin to take away the “smoking deals” on foreclosures and short sales. Not only that, they’re aiming to compensate families who were forced out of their homes prematurely due to improper foreclosures. Read more about it here:
Summary, if you’re considering buying or selling:
Sellers (if you’re not upside down in your mortgage), it may be the right time to beat the competition. Consider getting your property listed sooner rather than later.
Buyers, it may be the right time to get your financing in place and find your new home. Beat the crunch, before interest rates go up and the banks get buried (again) in the Fed’s mandated refi’s and principal reductions.
In case you’re wondering, here’s what’s happening with real estate in Spokane:
Many Realtors, including myself, have seen an increase in calls, online traffic, home showings, and closings this December. The market feels like there’s been a substantial shift in confidence, and the numbers say the feeling is right.
Active listings have continued to decline thru the last two months reportings (October/November), dropping down to just under 2600 properties (from close to 3000 in September). This equals sold homes, and we know why; successful closings held steady in the range of 320 completed transactions. Usually, they dip down a bit in November… I am very interested to see what December’s numbers show us. From the buzz around the office, a lot of people were getting new homes for Christmas!
Proof positive is seen in the fact that sales this November were up 15.7% over 2010. Even though average sales prices dropped another 3% the past couple months, if the trends stay the same as the past two years, we should see them leveling off and possibly increasing slightly with the increase in activity and somewhat boosted buyer confidence, not to mention the decrease in inventory.
Best of all, interest rates are still holding steady below 4%!
I hope this information is useful for you. Give me a call, text, or email if you’re ready to make your move, just want to say hello, or have any questions regarding the state of the Spokane market or real estate in general.