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FHA Mortgage Insurance Increases April 18th
For all FHA mortgage loans with case numbers assigned on or after April 18th 2011, the mortgage insurance premium will be increased making it more expensive for homebuyers. This change will not affect those who already have a FHA case number assigned or FHA loans that are already funded.
To help you better understand FHA mortgages, there are two types of mortgage insurance; Upfront Mortgage Insurance and Annual Mortgage Insurance. Upfront Mortgage insurance premiums (UFMIP) will be unchanged at 1% of the loan amount. Annual mortgage insurance premiums (MIP) will be raised .25% effective April 18th 2011.
Annual mortgage insurance premiums are based off a percentage of your loan amount and are paid monthly. The percentage also changes based on your loan to value (amount you are borrowing divided by your homes value) and loan term. The chart below displays the different premiums for each scenario.
- 15-year loan term, loan-to-value > 90% : 0.50% per year
- 15-year loan term, loan-to-value <= 90% : 0.25% per year
- 30-year loan term, loan-to-value > 95% : 1.15% per year
- 30-year loan term, loan-to-value <= 95% : 1.10% per year
For example, on a $100,000 loan with a 30 year term over 95% LTV, your Mortgage Insurance Premium would be 1.10% x $100,000 = $1,100. This would then be divided by 12 to get the monthly amount which is added to your payment. $1,100 / 12 = $91.67 per month.
The reasoning for this increase in fees to the Federal Housing Administration is due to the increase in volume of FHA loans over the past 5 years. As subprime loans were done away with, many homeowners would not qualify for conventional mortgages due to credit issues or loan to value issues. FHA mortgages are more flexible for these situations.
To learn how to get rid of your mortgage insurance refer to our previous post at Understanding Mortgage Insurance or speak with a mortgage professional.