Arizona Mortgage Blog by Kelly Zitlow

FHA Increases Mortgage Insurance Premiums on FHA Loans Again!

To ensure FHA can continue its historic role of providing home financing during periods of economic volatility, they will be increasing their annual mortgage insurance premiums this coming April.  As noted in President Obama's 2012 Budget, FHA will increase their premiums by 25 basis points on FHA Loans.

To read the Annual Mortgage Ins. Premiums for loan terms, click here.

The net result of this change......going forward FHA loans will have higher monthly payments. With short sales extending the buy cycle, it is prudent for lenders to keep the pending mortgage insurance increase in mind when pre-qualifying FHA Loans. I do my best to anticipate potential hurdles with our Arizona clients and implement a strategy to overt those hurdles if possible! Educating Arizona FHA Loan buyers and clearly communicating the specifics leads to successful homeownership and happy closings.

As always, don't hesitate to contact me with any questions you have about this FHA Loan update or any of my previous Arizona Mortgage updates. As a reminder, an archive of my weekly updates can be found on my website under Arizona Mortgage Resources > Arizona Mortgage Blog & Newsletter Updates.

~ Kelly

Quote of the Week: You can't wait for inspiration.  You have to go after it with a club. ~ Jack London

It was only a few years ago many Arizona homebuyers were priced out of our real estate market. First time homebuyers, those who wanted to down size or those who were starting over after a short sale or foreclosure weren't able to afford the inflated prices.  There is a new Arizona market growing among us! Arizona mortgages and housing are once again affordable. Trulia.com recently ranked the Phoenix area as one of the top 10 most affordable cities in the country! Affordability is at a generational high due to low home prices and rock-bottom interest rates on Arizona mortgages fueled by a Fed Monetary Policy that won't last forever! The cost to own is many times less than the cost to rent. See example below.

Average SFR rental rate:               $1302
Average SFR purchase price:      $171,500

Using the average purchase price of $171,500 at an interest rate of 5% ~ the estimated principal, interest, taxes & insurance (PITI) payment using a FHA Loan with a low 3.5% down is $1196.43a month! Subtracting this from the average rental rate of $1302 the homeowner is saving $105.57 per month to own instead of rent! Once they account for the mortgage interest tax deductibility benefits, the savings is even greater!

Now let's look at the relationship between falling prices and rising interest rates for all of those Arizona people who are waiting for values to decline further. Using the same average purchase price of $171,500, a FHA Loan, and reducing the price by 5% we get a purchase price of $162,925.  With an interest rate of 6%~ (FHA Loan) the estimated PITI is $1244.98. To summarize, if the average price drops by another 5% and interest rates increase by a point the payment is almost $50 more per month to wait than buy now! The mortgage bond markets, which drive interest rates, have struggled to maintain a floor over the last week and as a result interest rates have trended upward.

One of the benefits of the large supply of homes on the Arizona market is that buyers have many options to choose from as well as negotiating power to receive closing cost contribution. I'm not saying it's easy ~ I know firsthand with all the foreclosures and short sales, this market is challenging on many different levels!  I also know this Arizona market will bring opportunity to those who choose to seize it!

Know the maximum allowable seller concessions before you write the contract

Most of us in Arizona are aware maximum allowable seller closing cost contributions vary by loan type. But did you know the maximum allowable seller contributions vary dramatically on Conventional Mortgages?  It's true! The buyers down payment AND occupancy type (owner occupied, a second home or an investment property) will determine the maximum allowed. Knowing the following before you write a contract will keep you and your buyers happy.

I've seen several conventional mortgage transactions over the last few months with the seller contributions exceeding the maximum allowed by Fannie Mae. Investment properties have the lowest threshold with the maximum allowable seller contribution of 2%.

Imagine this scenario ~ Short sale takes 3 months to get approved. The executed Arizona contract calls for the seller to pay 3% of the closing costs. The buyer is buying a house that is an investment property and therefore the maximum seller contribution is 2%. You can see where this is going…not a fun phone call to make!

Here is a link to my Arizona Mortgage Market newsletter that covered the details. You will find a summary of the maximum seller concessions by loan type for Conventional, FHA Loan, and VA Home Loan.

Maximum Seller Paid Costs by Loan Type