"Trust your own instinct. Your mistakes might as well be your own, instead of someone else's." ~ Billy Wilder

Beginning September 7th there will be a new schedule for FHA mortgage insurance premiums made after that date. In basic terms, the upfront premium will decline from 2.25 percent to 1.0 percent and the annual fee will increase from .55 to as much as .90 percent.

All of this raises a question: If the FHA expects to raise an additional $300 million per month with the new program — and it does — are borrower costs rising by $300 million? The answer has to be yes, but the increase may be a lot less per loan than most people anticipate.

Here’s why: To understand what’s going on let’s imagine that you get a $200,000 fixed-rate FHA loan. Let’s also say that the loan lasts seven years — which, as it happens, is a typical loan term before an FHA mortgage is paid off, refinanced or erased as part of a home sale. The loan is a 30-year mortgage at 5 percent.

Under the old schedule there would be a 2.25% fee up front — that’s $4,500 that must be paid in cash or added to the loan amount. Over a period of seven years the loan balance goes from $200,000 to $179,871. In other words, the average amount outstanding over seven years is $189,935. With a mortgage insurance premium of .55 percent per year, it means the total cost for the annual mortgage insurance premium, the MIP, is $7,312. Add the up-front fee and the annual fee over seven years and the total cost for FHA loan insurance under the current system will be $11,812.

Under the schedule for loans made on September 7th and thereafter, the up-front fee for the same loan will be $2,000. The annual MIP, .90 percent, will be $11,966 or a total for FHA financing of $13,966.

What his means for borrowers and to you:

FHA will still be the most affordable solution for first time buyers. Even though the payment on a $200,000 FHA loan would be higher than a traditional 95% Fannie or Freddie loan (@ 5% the payment would be $38.71 higher) the down payment dollars required would be $3108 less and the cash-on-cash payback on this difference in payment is 80 months.

FHA loans have changed their pricing model to a risk based pricing model like Fannie Mae and Freddie Mac already, a person with a 620 FICO score will have a higher rate than a 740 FICO score borrower. FHA will still lend to those with 620 scores when others will not.

The new MIP and monthly mortgage insurance premiums will guarantee that FHA will be around for the future new home buyers no matter what your credit score.

The Valeo-Croy team provides expertise for all FHA programs including financing of HUD foreclosures and getting FHA approval for condo developments. Please think of us first of your first time home buyer.

When you deal with The Valeo-Croy team of Cunningham and Company you get the best of both worlds. We work behind the scenes to get multiple investors to compete for your loan. This, coupled with State of the Art Technology allows us to deliver favorable results with great rates with an on-time closing.

@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team - (704) 366-7711

Todd Croy - NMLO license #91428

Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.

This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply. Date: 8/9/2010