With all the foreclosure activity we have seen since the housing market started slipping, mortgage insurance companies have really suffered. Mortgage insurance is essentially “foreclosure insurance” for banks.
When a home buyer purchases a house with less than a 20% down payment, they are usually required to pay for a policy of mortgage insurance to cover the lender in the event of a default. These Mortgage Insurance premiums have been used with most FHA and conventional loans over the past three years.
FHA has been the primary choice for first time buyers, who usually can not come up with a large down payment. There have been several changes to how mortgage insurance payments have been made over the last year. Because there has been so many foreclosures, FHA needs to collect more funds to cover their mortgage insurance pool.
The most recent FHA change this spring increased the upfront mortgage insurance cost to 2.25%. This made up front closing costs more expensive for borrowers. Because this makes it more difficult for people to buy homes in a time while the economy is struggling, FHA wants this amount lowered.
Starting October 4th, the up front mortgage will go down, but the Annual Mortgage Insurance premium is increasing from .55% to .9%. Also FHA has Congress approval to raise this annual fee to 1.55% without requiring an additional vote.
A lot of Logan Real Estate mortgage lenders are concerned about how the new FHA changes will effect peoples abilities to afford homes, even though interest rates are at historic lows. Higher monthly mortgage insurance payments lower the debt to income ratio.
Now, no matter what people can’t have total debt of more than 41% of income, and the actual mortgage debt can’t be more than 29% of their total income. The 29% includes Principal, Interest, Taxes, Insurance, and Mortgage Insurance.
The increase in annual Mortgage Insurance increases with a multiplier effect, it really makes a differences in the amount of loan borrowers will be able to qualify for. It greatly effects the debt to income ratios, meaning buyers will be less likely to buy more expensive Homes for Sale in Utah.