With the premiums for FHA mortgage insurance set to rise next week and seller concession policies changing shortly thereafter, at gut check response, it may seem as if the government is taking steps to slow the purchasing trend for new homeowners.  However, this may not be the case.

http://finance.yahoo.com/news/Is-Government-About-to-Make-cnbc-4202459553.html?x=0&sec=topStories&pos=main&asset=&ccode=

It really breaks down to understanding what’s happening with the raw numbers of a new loan.  First – You will be paying more for this Mortgage Insurance, as the annual premium is about to INCREASE.  Second – You actually finance less money overall, as the upfront premium is being DECREASED.

At the end of the day, this will spur some increased volume in home purchases because of the lower up front costs to do so.  However, it does increase the overall payment on these properties by a very slim margin.  Ultimately, it looks like buyers will need more income or credit to qualify for this finance program because of the increase in monthly costs.

If you have the ability to put more money down at closing, the sooner this mortgage insurance premium can be waived.  Under the Homeowners Protection Act of 1998, once you’ve realized a 20% equity position, this mortgage insurance premium is waived.  That has not changed.  This may be only a reality for those borrowers that do not use FHA as their loan type.

Where’s the Silver Lining in this new plan?  Even though borrowers will see a slight increase in monthly payments on the annual premium percentage, the government will recover more money to replenish their reserves, which, in turn, can HOPEFULLY help stimulate the economy.  Lower upfront premiums will encourage new purchases, higher annual premiums will continue economic stimulation.  Who knows, in four years, we may see the upfront and annuals flip flop like they were prior to October 4, 2010.

Now it’s time to make a correct decision about current borrowers in default.  That’s when the true fix and reassurance of economic confidence will take place.