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FHA became the loan of choice for Eugene/Springfield buyers after the housing bubble burst. Those that didn’t have high credit scores and/or large down payments could get a low down payment mortgage insured by FHA at a lower overall cost than with private mortgage insurance. (PMI)

That has already changed for some buyers. Those with at least 5% down and a high credit score can often get better overall payment through private mortgage insurance carriers than they can from FHA since the UFMIP (up front mortgage insurance premium) that is charged on every FHA loan increased from 1.75% to 2.25% last year. This combined with the willingness of PMI companies to start insuring 95% loans in our area again, made it possible to get a lower payment through conventional financing.

Now, the House has approved a bill that allows FHA to change their yearly mortgage insurance premium (paid monthly) from .55% up to 1.5%. Indications from FHA are that the rate will change from .55% to .9% but the authorization came back from the House at 1.5%. So far, there is no indication that the Senate will approve the same measure. They could change it either up or down or not even act on the measure.

It is interesting to me that the people that FHA is supposed to be helping will be the ones most harmed by this increase in mortgage insurance premium. The lower income borrower often has a lower credit score also and can’t qualify for the same PMI rate that a buyer with more income and better credit can, so they will be the ones that will still be required to finance with FHA. Since there are no income limits on an FHA loan, the reverse was not true. When FHA was the best deal, anyone could apply for and receive an FHA loan as long as they qualified.

As a note, FHA does not make loans, FHA insures the loans against default, the same as PMI companies do. FHA is an evolving product and Director David Stevens seems to be working to make sure the program continues to function. This may be the only way that can be done. I know that FHA has been taking some pretty big hits on the foreclosure front, so it will be interesting to see if this finger plugs the hole in the dike.

Contact me

Navigating the mortgage approval process can be daunting. You need someone on your side. I am available right now to help you with the loan process and know the ins and outs of FHA, VA, USDA and conventional financing. If you want to buy a home using an FHA loan or refinance using VA, I am here to help. Contact me at Alpine Mortgage Planning, 1200 Executive Pkwy., Ste. 100, Eugene OR 97401, 541-342-7576/541-221-3455 cell or by e-mail. Only you can make the choice it is time to get the process started.