There are three major changes being proposed with FHA Mortgages. First, they are proposing changing the up front MIP, which is financed into 99% of FHA mortgages, from 1% to 1.75% of the loan amount. Second, they are increasing the monthly Risk Premium (equivalent to PMI on a conventional loan) from 1.15% to 1.25% of the base loan amount. These two changes are subtle with minimal impact on the borrower's monthly payment. The third, and most significant change, is they are reducing the allowable seller's assistance toward the buyers closing costs. It is currently 6% of the selling price, and now it will be reduced to 3% of the selling price or $6,000, whichever is greater. Since many of the closing costs are fixed costs, it will help the low-end buyer be able to cover more of their closing costs. For example, if a buyer purchases a home for $60,000, they may have closing costs as high as $ 6,000. Under the current system, the seller may only pay $ 3,600 (6%), which means the buyer will have to come up with the difference. Now the $ 6,000 rule will cover all of the buyers closing costs at settlement. Lets use another example for a high-end transaction. Lets use a $ 300,000 purchase. With closing costs being $ 15,000, the old rule allowed too much seller's assist ($18,000). Under the new rule where they are allowed only 3%, the seller is limited to giving $ 9,000. The buyer will have to come up with an additional $ 6,000 to close in addition to their 3.5% down payment. These changes will benefit the low-end buyers, and help stimulate the economy, or so they say. It remains to be seen.
Andy Williams
President
Abacus Regional Mortgage (NMLS# 113984)
484 695 5972
NMLS # 118317
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