Coming Soon to a Mortgage Theater Near You: FHA Mortgage Insurance

Coming Soon to a Mortgage Theater Near You: 

FHA Mortgage Insurance

FHA upfront mortgage insurance and FHA monthly mortgage insurance are changing again per FHA.

The new FHA insurance premiums will be effective on Oct 4, 2010.  See HR 5981.

The great news is that FHA is lowering the upfront mortgage insurance to 1.25% (down from 2.25%).  This makes sense since they have reiterated numerous times that they want to make FHA loans more affordable for consumers. 

However, in direct contrast to their statement, FHA will be increasing the monthly mortgage insurance from .55% to as much as 1.55%.   

Example: 

$300,000 loan amount = old monthly premium at .55% = $137.50/mo.

$300,000 loan amount = new monthly premium at 1.55% = $387.50/mo. 

This will create a heavy burden on home buyers, and will restrict many from qualifying. 

The reason FHA needing to increase their monthly mortgage insurance premium is the dangerously low reserves in their Mutual Mortgage Insurance Fund. 

I understand that the increase to 1.55% will not happen all at once and instead will increase initially to .85% or .90% depending on down payment.

“With this authority, FHA is in a better position to address the increased demands of the marketplace and return the MMI fund to congressionally mandated levels without disruption to the housing market,” said Commissioner David Stevens. 

  I cant figure out FHA’s math, or how this increase will “not disrupt the housing market.”