New FHA MIP (Mtg Insur Premium) Changes Take Effect Oct 4th

For the second time this year, the FHA is modifying mortgage insurance.  On October 4th, the Federal Housing Administration (FHA) will implement another round of changes to the premium structures for FHA-backed mortgages.   Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity (financing < 95%) the changes include --

• Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
• Annual MIP increases to 0.850% of the amount borrowed from 0.500% **

** When putting down less than 5% (LTV > 95%) the annual MIP increases to 0.900% (from 0.550%) of the amount borrowed.

In addition, borrowers will also be required to have a higher credit score than before. The FHA loan is popular because its minimum down payment is 3.5%, whereas most conventional loans require a much higher down payment.  FHA will make the premium fee changes on all new case numbers effective October 4, 2010.

Why is the FHA raising Mortgage Insurance (MI) payments now in this market? 

As the graph supports, the FHA’s reserve funds have been rapidly depleting and need shoring up soon to withstand future imminent defaults.  Money generated from these changes should help recapitalize and stabilize this government agency. For additional details see FHA BILL_H.R. 5981.  

Looking for more on the new FHA MI changes (and a little humor) check out Twist on New Home Buyer Tax.

If you’re unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email your loan officer for help.