As April 5th approaches and many people are concerned about the “new” FHA upfront premium, I thought a little perspective was important. First, “new” is really old. The upfront rate used to be 2.25%. So we are just moving back to where it was. This is not the definition of new. Secondly the increase in payment to the customer on a $250,000 loan is a mere $6.71 per month. As I look at the FHA statistics for the past year (see below) the $6.71 per month seems like a very small price to pay to keep the FHA solvent.
The number of FHA loans that were in early default has declined 15% since December 2009. The FHA believes that the reduction in early defaults is the direct result of the elimination of Seller funded down payment assistance; hence, the push for the seller concession reduction from 6% to 3% which still has yet to be approved.
In light of what appears to be coming soon to an FHA loan near you imagine a new loan if you will: A little higher interest rate (to compensate for having no junk fees, no title costs, and no upfront homeowners insurance). Now the 3% seller concession can go directly to lower the rate to allow the borrower a lower payment and still keep within the 3.5% down payment.