The quantity of applications for FHA-insured mortgages dropped by nearly 25% in April as the Federal Housing Administration implemented the premium hike announced in early March.
On April 9, FHA officially raised its annual premium by 10 basis points and its upfront fee by 75 bps. The premiums on 30 yr fixed FHA loans are now 175 bps for the upfront fee and 125 bps for the annual premium on loans with an LTV ratio greater than 95% (higher on loan amounts >$625,000).
Once the lender takes an application they can receive a FHA case number. It takes another 30 to 60 days to close the loan. As a result, there is likely to be a bulge in FHA endorsements over the next couple of months as applications for standard FHA-insured loans dropped in May and June.
Applications have been rising for several months, thanks to lower mortgage rates. FHA endorsements of refinancings are up 45% from February to $9.3 billion in April.
The real estate purchase market in the first time buyer range has been very strong over the past couple months in the Los Angeles region. We’ll see how much of a negative effect the increase in premiums will have on that segment of the market around July-August.
FHA (HUD) doesn’t make loans. They insure them. PMI (private mortgage insurance) has become a more economical way to insure loans, but the underwriting guidelines make FHA loans easier to qualify for, and because of new regulations and the secondary mortgage backed security market, the FHA loans interest rates are presently running around .5% lower than conforming. It’s just the insurance cost that makes the FHA loan more expensive.
Always have your lender evaluate the conforming vs FHA qualifying and financial options. There are pros and cons to both… Then again 20% down resolves the issue…