FHA annual mortgage insurance premiums will increase by one-quarter per cent on April 18th, 2011 according to FHA's Commissioner, David Stevens. The most recent FHA mortgagee letter says that the up-front mortgage insurance premium which is usually financed in a real estate transaction will remain the same at one per cent.
"After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA's capital reserves and help private capital return to the housing market," said Stevens. "This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments."
In August of 2010, FHA restructured the way they charge mortgage insurance premiums, loading the bulk 
of the premiums into the borrower's monthly payments versus a larger financed amount. At that time Congress cleared the way for FHA to increase its monthly mortgage insurance premiums all the way to 1.55%.
Under the present terms new FHA borrowers will pay 1.15% of the mortgage amount towards instead of .90% as they have paid recently. In real terms this will increase monthly payments for FHA borrowers by about $30. Another way of looking at it, of course, is that it will decrease the maximum qualifying power of borrowers by an equivalent amount, resulting in a drop of about $5,000 to $6,000 in maximum loan amount.
The April 2011 mortgage insurance premium change will not impact homeowners who already have FHA loans.
If you are looking for a home in Minnesota now is the time to buy. Over the past several months we have seen a general increase in mortgage rates and mortgage insurance premiums which ultimately increase the cost of owning a home. In order to obtain the present monthly mortgage insurance premiums a buyer needs to make a loan application for a property under contract prior to April 18th, 2011.
While this increase is not entirely unexpected it is yet another signal from FHA that they want to reduce their role in the mortgage lending industry. With the rapid changes over the past few years FHA's involvement has increased to unprecedented levels.
Over time we can expect more changes from FHA such as increased down payment requirements and tougher underwriting guidelines. These changes will eventually push more borrowers towards conventional mortgage financing which has generally been tougher to obtain in recent months. As a result, stocks of conventional mortgage insurance companies have been rising recently.
Are you ready to learn more about buying a home in Minnesota? Give me a call today!
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