Las Vegas home buyers! New changes are in store for FHA mortgage insurance premiums. John Longstreet with Cornerstone Home Lending submmitted the following analysis today.
FHA is lowering their upfront MIP to 1% as of October 4th,2010! The bad news is that they are INCREASING the MIP renewal from .55% to .90%, which, in purchasing terms, will decrease the buying power of your buyers by approximately $7500 from their maximum purchase price. But, in the long run, is it really bad news? See how the new premiums will affect equity over time.
See below illustration:
Up front mortgage insurance will decrease to 1.0% for all amortization terms
- Annual premiums will increase on amortization terms >15 years to:
- .85% on LTV’s <95%
- .90% on LTV’s >95%
Old MIP vs. New MIP illustration
Based upon a loan amount of $200,000 @ 4.5% rate @ 30-year @ 96.5% LTV:
(*The Borrower Pays $45 more per month which translates into a negative $7,500 in buying power.)
However, if home is sold at year 7:
[*FHA gets $2,102 MORE in MIP but principal balance is $2,175 less, so at year 7, it's basically a "wash". (the same calculation for 5 years, same deal.)]
Bottom line, FHA gets MORE, but the buyer builds up more equity.
As of right now, the MI is still deductible on income taxes (sunset on December 31, 2010).
Just a reminder, that the MI drops off after it reaches 78%, or approximately 10 years!
John Longstreet can be reached at 702-250-0688 cell. He is based in Henderson, NV with Cornerstone Home Lending.