In November 2010 the Department of Housing and Urban Development (HUD) reorganized both the upfront mortgage insurance premium and annual mortgage insurance premiums for FHA loans. The result was a lower upfront premium paid when closing on a loan with FHA financing, but a larger annual mortgage insurance premium which is split up on a monthly basis for borrowers.
What this did is slightly decrease initial loan amounts for borrowers, but increased monthly payment for homeowners obtaining and FHA home loan. Unfortunately, there will now be another increase to the annual mortgage insurance premium coming in April 2011, which again will mean slightly more expensive payments for borrowers obtaining an FHA loan. Thank goodness for the time being, interest rates continue to remain low.
In general, the annual mortgage insurance premium (MIP) for FHA loans will rise another quarter of a percent (0.25) for single family FHA loans starting next month.
These changes will apply to most FHA loans that are insured after April 18, 2011. At that point, the following MIP standards will be in place:
30-year FHA loans will have an annual MIP of 1.1 to 1.15 percent of the loan amount.
FHA loans with a term of 15 years or less will have an annual MIP of 0.25 to 0.50 percent.
These changes will however only apply to the annual mortgage insurance premium for FHA loans. The upfront premium remains the same. There are two types of mortgage insurance on FHA loans: an upfront premium that gets paid at closing, and the annual premium that gets rolled into the monthly mortgage payment.
When you use an FHA home loan to buy a house, you will have to pay two forms of insurance on the mortgage loan.
The upfront insurance premium is 1 percent of the loan amount, and you must pay it at closing. There are currently no increases planned for the upfront portion.
The annual premium is added onto your monthly payments. In April 2011, this premium will increase to the amounts mentioned earlier: 1.1 – 1.15 percent for 30-year loans and 0.25 – 0.50 percent for shorter loans.
As always if additional changes are made we will continue to provide updates and analysis, but for the time being it looks like FHA loans are getting a little more expensive once again. Yet still, they remain an attractive option for many buyers with some of the lowest down payments and credit standards of any loans in the market place and with interest still near historic lows.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
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