On August 12, 2010, the President signed into law, Public Law 111-229, which provides the Secretary of Housing and Urban Development (HUD) with additional flexibility regarding the amount of the premiums charged for Federal Housing Administration (FHA) single family housing mortgage insurance premiums.
What this means is on October 4th FHA loans that have not been assigned an FHA case number will be subject to the new mortgage insurance premiums. An FHA case number is typically assigned to a loan when the file is ready for the appraisal to be ordered. FHA Case numbers are not assigned when a contract is written and accepted by the seller.
The upfront mortgage insurance premium (UFMIP) will be reduced but the annual premiums that are included in the monthly payment will be increased, which will generate more income for FHA, but also increase monthly FHA mortgage payments for buyers.
Here is the new grid for the premiums.
n Purchase Money Mortgages and Refinances will have an Up Front Mortgage Insurance Premium (UFMIP) of 1% of the loan amount.
n Annual Premiums on loans greater than 15 years with a Loan to Value (LTV) =or < 95% LTV will be charged .85% of the base loan amount.
n Annual Premiums on loans greater than 15 years with a Loan to Value (LTV) > 95% LTV will be charged .90% of the base loan amount.
n Annual Premiums for loans with amortization schedules less than or equal to 15 years will remain unchanged at .25% of the base loan amount for loans > 90% LTV.
Keep in mind that the annual premiums are divided by 12 months and added into the mortgage payment as a monthly Mortgage Insurance Premium.
So, as an example a house selling for $200,000 with a 3.5% down payment will have a base loan amount of $193,000. After the 1% UFMIP the total loan amount will equal $194,930. The monthly principal and interest payment on a 4.5% rate over 30 years would be $987.68. Since the LTV is over 95% the annual mortgage insurance premium will be .90% which equates to $1,737 divided by 12 months equals $144.75 per month in mortgage insurance. Total Principal, Interest, and Mortgage Insurance payment will now be $1,132.43 per month
With today’s FHA mortgage insurance premiums this particular scenario would have a total loan amount of $197,342.50 as the UFMIP is 2.25% today. The monthly principal and interest payment on a 4.5% rate over 30 years would be $999.91. The Annual Mortgage Insurance Premium would be at .55% which equals $1,061.50 and becomes $88.45 per month in Mortgage Insurance. Total Principal, Interest, and Mortgage Insurance payment would now equal $1,088.36 per month.
So, in the end it is not going to be a huge increase in monthly payment for most borrowers, but for some it could be the reason for them to take another look at a conventional loan.