FHA Makes Changes to Mortgage Insurance Premiums

On August 12, 2010 the President signed into law a bill that provides the Secretary of Housing and Urban Development (HUD) with additional flexibility regarding the amount of the premiums charged for FHA loans. On September 1, 2010 the Secretary decided to raise the annual premium (MMIP) paid monthly and correspondingly lower the upfront premium (UFMIP) which is added to the loan amount. The effective date is October 4, 2010 for all new case numbers assigned by FHA.

The Upfront Mortgage Insurance will decrease from 2.25% to 1.00%. The Monthly Mortgage Insurance will increase from .55% to .90% on most FHA loans. Here is an example of how it will change.

Currently in Effect

Sales Price  Down Payment  Loan Amount  UFMIP  Total Loan  P&I Payment  MIP  P&I+MIP

$500,000      $17,500               $482,500          $10,856   $493,356    $2,499          $221   $2,720

Effective October 4, 2010

Sales Price  Down Payment  Loan Amount  UFMIP  Total Loan  P&I Payment  MIP  P&I+MIP

$500,000      $17,500               $482,500          $4,825     $487,325    $2,469          $362   $2,831

As you can see by the example above the UFMIP decreased by $6,031 however the MMIP increased by $141. The net effect is the total payment increased by $111. The buyer will need to earn an additional $3,000 per year to qualify for the same property.