NOTE : FHA mortgage guidelines change frequently. Relevant updates are posted to http://themortgagereports.com/fha-most-recent-updates. Information below may be outdated.
The "other shoe" dropped Monday when HUD announced that mortgage insurance for FHA loans will increase April 1, 2012 and again June 1, 2012. Mortgage insurance, similar to Fannie Mae and Freddie Mac guaranty fees, protect one party from the risks of the borrower becoming delinquent of going into foreclosure.
FHA loans have two tiers of mortgage insurance.
As FHA mortgage insurance exists today, there is an up-front mortgage insurance premium equal to of 1 percent of the loan’s amount. Upfront MIP can be added to closing costs, or borrowers can finance it by adding it to the loan amount.
There is also an annual MI premium that varies by loan type. For 30-year fixed rate mortgage, annual MIP is equal to 1.1% of your loan size for LTVs of 95% or lower. For everyone else, annual MIP is 1.15% of the loan size.
Annual MIP is paid monthly. The formula is (Loan Size) * (MIP Rate) / (12 Months) = Monthly MIP payment.
So what the does the FHA's new mortgage insurance rates mean to FHA mortgage applicants?
Starting April 1, 2012, Upfront MIP for loans raises from 1.000% to 1.750% of the loan size. Annual MIP fees change, too, climbing by 10 basis across the board, and by an additional 25 basis points for loans between $625,500 and $729,750.
$729,750 is the largest FHA loan limit. It's reserved for high-cost areas like the Washington, D.C. Metro area, New York City, and many parts of California.
If you think you'll want an FHA loan for your next mortgage, the best way to avoid the new FHA fees is to have your FHA Case Number assigned before the new FHA MI premiums go into effect April 1, 2012. All existing FHA mortgages will use the "old" MI rates.
About the Author
Rob has a 27-year history in the mortgage banking industry. He publishes a widely-read daily mortgage market and economic commentary at http://www.robchrisman.com. Rob lectures, consults for mortgage companies, and is a member of the California Mortgage Bankers Association and the Mortgage Bankers Association of the Carolinas. Rob holds a BS from Cal Poly, San Luis Obispo, and an MBA from UC Berkeley.