FHA Mortgage Insurance Increasing Again on April 18th

A growing number of home buyers are using government-insured FHA home loans due to the favorable terms that they offer, compared to other loan types.  With all the changes in 2011 FHA guidelines, potential buyers need to educate themselves on new developments and requirements.  

For the third time in 10 months the FHA has altered its home loan insurance costs.  Starting April 18^th, 2011, the new monthly MI (mortgage insurance) factor(s) will be as follows: 

• If LTV is <= 95% then the annual MIP increases to 1.10% of the amount borrowed (previously this rate was 0.85%) 
• If LTV is > 95% then the annual MIP increases to 1.15% of the amount borrowed (previously this rate was 0.90%) **

Why is the FHA increasing its annual MIP?  The main reason is because the FHA now insures a much larger percentage of the total U.S. housing market. As the WSJ graph supports, in 2010 a good 50% all new mortgages were insured by the FHA. Due to last years’ rising delinquencies/defaults on its loans [and shrinking reserves] the FHA has been forced to raise insurance premiums for new borrowers.  The FHA has stated that the 0.25% increase to the MIP will “significantly strengthen” its reserves (which by law must remain above certain minimum levels).

If you are in the process of buying (going under contract) make certain your loan officer has ordered your FHA case #. Either way, consult your lender to get the full scoop!  If you need help finding a trusted lender, please ask.

NOTES -

 ** The higher MIP rate is based on putting down less than 5% (LTV > 95%) allowing the buyer to bring less cash to close.
  

- The Upfront cost of 1% of Base Loan Amount remains the same (last change was Oct 2010). 

- FHA loans are known for being the primary loans for first-time home buyers due to the 3.5% low down payment. 
- A first time buyer, as defined by HUD, is anyone who has not owned a home within a 3 consecutive year period.
- An FHA loan can be for any future homeowner who qualifies under the FHA loan underwriting guidelines and property type requirements.

- FHA loan limits vary by County with larger loan amounts allowed in areas with higher housing costs.  FHA’s maximum SF home loan limit in Wake County is currently $295,000.
- FHA loans are loans originated by private mortgage lenders and insured by the Federal Housing Administration against default by the borrower.

- MI is the type of insurance that covers the lender (not the consumer) against default on a government, FHA loan.