FHA Expected to Charge Private Mortgage Insurance for the Life of the Loan

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The Federal Housing Administration, a division of the US Department of Housing and Urban Development, is soon to be implementing some major changes. At least that’s what this Wall Street Journal blog post says. The news is not good. At a time when many homeowners or hopeful homeowners need the government’s help in owning a home, the FHA seems to be turning its back on those that need it the most.

Until now, and at least through the next several months, FHA financing has helped countless borrowers with such features of the program as low down payment (just 3.5%), ability to use gift monies toward the purchase of a home and facilitating home ownership for people with less-than-perfect credit.

But now, if the proposed changes take place come next quarter then we will definitely see a huge shift in the housing market. Right now, as always has been the case with FHA loans, borrowers are charged a PMI premium through the first five years of the loan and until there is at least 22% equity in the property. The changes however will dictate that PMI be charged for the life of the loan.

How does this impact you as a homebuyer? As a seller?

Buyers’ Purchasing Power Will Take a Hit

The single biggest thing that will happen with this change is how much money each month will go toward additional costs of owning a home versus going toward the principal. That means that unlike now when a homeowner can expect to be paying off their home at a reasonable pace, particularly once PMI drops off, they will have to endure these costs till the home is paid off.

Refinances Will Be a Thing of the Past

With the cost of FHA financing going up in this significant manner, no homeowner will ever want to engage in a refinance, particularly if they only have one or two more years of PMI due on the property. That means continued high interest rates would be paid on existing mortgages with no hope to refinance without taking a serious hit. Of course, all this steers our economy in the wrong direction.

Sellers Can Expect Challenges in the Market

From a seller’s standpoint, the likelihood of a depressed market to ensue following this colossal change is high. The current number of borrowers that are using FHA products is high and with a huge decline in the number of FHA mortgagors there will be as many fewer buyers on the market.

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If you have any questions about this or would like to explore your options before this seemingly historic change is implemented, I invite you to come visit me or call. I’m happy to help!