This week congress passed HR 5981 which grants FHA the power to adjust the mortgage insurance rate from current cap of .55% to 1.55%
According to communication sent out earlier this week by FHA Commissioner David Stevens, the initial adjustment will to raise the preimium from the current .55% to .85%-.90%. This will make the mortgage payment, before escrows, on a $150,000 purchase $853.26 per month as opposed to $816.26 under the previous guidelines.
While this does increase the monthly expense by about $40 per month on our example above, there are some positives to the changes. The first thing is that the changes are an attempt to keep the FHA program solvent and available to those wishing to purchase a home. Just like the recent changes in the USDA Rural Development program that just increased it's up front fee from 2.0% to 3.5%, FHA hopes to be able to continue to offer one of the most popular loan programs available for homebuyers. Secondly, FHA has stated that they intend to reduce the up front mortgage insurance premium from the current rate of 2.25% to 1.0%.
This change will serve to reduce the amount borrowerd and therefore offset some of the increase in mortgage payment brought on by the increase in monthly mortgage insurance premium.