Friday, February 3, 2017

FHA Mortgagge Insurance Premium - Up, Down, Up

Many of you have read about the FHA mortgage insurance premium reduction being suspended by Ben Carson, the newly appointed head of The Department of Housing and Urban Development (HUD). The plan was on 1/27/17, the FHA mortgage insurance premiums were going to be reduced for the majority of the products offered by FHA. The principle reason is the insurance coffers at FHA have been replenished since paying out millions in claims as a result of the mortgage crisis. However, there was also the end result of the premium reduction that netted a lower payment for borrowers - causing a bit of concern when the reduction was suspended. All this being said, we are back at square one with FHA products.

So let me tell you where square one is:

1. A mortgage product with few pricing differences for credit scores from 500 - 850. Credit score and history is not a large factor with FHA products.
2. A mortgage product that, no matter how large your down payment, has mortgage insurance that NEVER goes away no matter your equity position over the life of the loan.
3. A mortgage product with a 1.75% upfront mortgage insurance premium ($300,000 x 1.75% = $5,250) in addition to the monthly mortgage insurance.
4. A mortgage product that will allow you to purchase a duplex, triplex, fourplex with 3.5% down payment.
5. A mortgage product that will allow you to buy a property and completely remodel/renovate down to the foundation and build additional structures (garage, ADU, etc.) with only 3.5% down payment.

The bottom line is that although there are a very few borrowers who may have been hurt by this suspense of the monthly mortgage insurance premium, FHA products are not long term products and should not be used as such. They are meant to be used the way a pole vaulter uses the pole. To get up to the place you need to be. Then once you are up to the bar (stick with me on the pole vaulting references here), you refinance out of that FHA product to a conventional product when your credit is better, your renovated home has given you equity, or your multi-family property has paid down the loan balance - and you clear the bar and perform your "fly-away" and let go of the pole (or FHA loan).

HUD is doing what it has to in order to keep this "pole" or "facilitation" product viable and if that means we stay at the higher monthly mortgage insurance premiums so creative buyers have a product, so be it. It is a good product for those who know how to use it. Also, HUD is being cautious and conservative to ensure the replenishment of the coffers is actual and sufficient - not a bad idea at all!

I am always available to discuss FHA/HUD or any real estate financing questions you might have at

Thank you very much!