Long Island real estate brokers and mortgage lenders anticipate a rise in home sales this month and in March, as some buyers hurry to evade higher costs for FHA loans.
The Federal Housing Administration will raise the cost of insurance that it provides for mortgages, starting with loan applications that get a case number on April 1 or later, the U.S. Department of Housing and Urban Development said this past month. Some mortgage brokers recommend applying for a loan at least a week before the deadline.
For most FHA loans, mortgage insurance cost will increase by 0.1 percent, or $100 a year for every $100,000 borrowed. The cost for FHA insurance of jumbo mortgages of $625,500 or more will rise by 0.05 percent to 0.1 percent.
For loans that get a case number on June 3 or later, the FHA will require many buyers to pay for private mortgage insurance for the life of the loan. Under current rules, the agency drops the requirement for many loans after five years if the borrower's loan balance drops to 78 percent or less of the original loan amount.
FHA loans often appeal to first-time buyers and those with less-than-stellar credit or little money for down payments, since the standards are less stringent than for conventional mortgages. FHA loans also tend to be more expensive. The minimum down payment for an FHA loan is 3.5 percent, compared with up to 20 percent for many conventional loans.
Previous cost increases for FHA loans have led to "a huge influx" in loan applications, said Lisa Cammarata, underwriting manager for Continental Home Loans in Melville. A buyer applying for an FHA loan must have a particular property in mind, but the buyer does not need to be in contract, she said.
Buyers' desire to get lower-cost FHA loans under current rules "is definitely playing a very big part" in a recent uptick in housing market activity, said Camille Marra-Merollo, a broker with RE/MAX Southshore Realty in Valley Stream.