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Market rebound could hit snag

Published On: Mar 11 2013 02:06:09 PM EDT   Updated On: Mar 05 2013 06:27:48 AM EST

Market rebound could hit snag


The sluggish housing market finally turning around as sales in the Lehigh Valley have been steadily on the rise.

But there are fears that the surge soon could hit a snag. This has to do with MIP or Mortgage Insurance Premium: an attached mortgage fee that protects lenders if you default on a loan.

Typically it's lifted after five years, but soon, for FHA loans, that won't be the case.


For those who can't afford a 20% down payment, a Federal Housing Administration-backed loan - or FHA - has been an easier route to go in buying a home.

"The seller can pay your closing costs, it's only 3.5% down. It's the biggest buying power out there right now," The Frederick Group real estate agent Kathy Reither-Ziegler said.

Now, is the key word. Starting April 1, home buyers hoping for the FHA loan advantage, may be playing the April fool, as MIP, Mortgage Insurance Premium, (which is needed when 20% can't be paid at closing) will be fixed for the life of the loan.

"It's not going to go away when you develop 20% of equity, which is the way it worked before," Ziegler said.

It typically takes five years to get to 20%. Reither-Ziegler said MIP can be hundreds of dollars a month, and add thousands of dollars over the life of the loan.

She's concerned the new rule will halt the housing market's recent momentum.

"I don't think it will be a long term. It will take awhile for people to understand what those changes are going to be," mortgage lender Chris Byrnes of Gateway Funding said.

Byrnes said the changes stem from the housing crash. MIP, aside from protecting lenders against foreclosures, keeps the liquidity on the market, so lenders like Byrnes have money for those buying right now.

 "I think it will force people to be a little more sophisticated in how loan is structured," Byrnes said.

This only affects those who settle after April 1st. If you have an FHA loan and already own your home nothing will change.

You can also refinance out of an FHA loan to have the fee lifted.