Home loan costs to increase

[Ed. Note — I received the email below from one of my colleagues in the lending arena; Lisa Fleck of Summit Funding. Lisa sends me news from time to time pertaining to home loans and financing. In her post below below Lisa explains how Congress’ recent passaged of the Temporary Payroll Tax Cut Continuation Act of 2011 will increase loan costs to borrowers. I thought I’d share Lisa’s information with this blog.]

Just before the legislature went on vacation for the holidays they passed the Temporary Payroll Tax Cut Continuation Act of 2011, extending the payroll tax for 2 months.  This payroll tax helps to pay for unemployment and social security.

Congress is funding this act by permanently increasing costs on home loans. 

Set to go into effect in April 2012, Congress has mandated that the annual FHA mortgage insurance premium be increased ten basis points, from the current 1.15% to 1.25%.  On a $150,000.00 loan this equates to a monthly increase of the mortgage insurance premium from $143.75 to $156.25. 

Additionally, effective April 1, a new G-fee of .10% has been added to conventional loans provided by all lenders in the country.  This fee is not a simple rate add, on but rather a yield add on.  The yield is the cost that lenders must pay Fannie and Freddie to buy the loan.  This cost is then passed onto the borrower and the cost that they have to pay for a rate.

It is anticipated that this yield cost will actually equate to .375% to .5% in additional cost to the borrower.  This cost can be incorporated into a higher rate or can be paid but the net result is that the rates on conventional loans have just increased and it has nothing to do with market conditions.

Example:  If the borrower was quoted a rate yesterday at 4% with 1% cost they would have to pay today 1.5% to get that same rate or they could chose a rate of 4.25% for 1% cost.

On a $200,000 loan this could equate to an additional $750.00 to $1000.00 in costs.

The reason why this impact is being felt right now is lenders are currently locking loans which will close in Feb and Mar, depending on the length of the lock.  It will take a lender 30-45 to sell that loan to Fannie and Freddie, which would then occur after April 1 making it subject to the .10% increase.

Your borrowers need to know about the changes to the costs of obtaining loans due to the legislation that has been passed.

This is explained very well on the 1/12/12 broadcast at www.thetbwsdailyshow.com. I recommend watching this short 5 minutes video – Your Buyers Pay More – Starting NOW!

Please let me know if I can be of any additional assistance or if you have any questions.

Lisa Fleck
Senior Loan Consultant 
Summit Funding, Inc.
775.824.3640
lfleck@summitfunding.net