Higher (And Lower) FHA Mortgage Insurance Premiums Start October 4, 2010

For the second time this year, the FHA is modifying mortgage insurance.

Beginning with FHA case numbers issued on or after October 4, 2010, the FHA is changing its upfront and annual mortgage insurance premium structure.

Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:

• Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
• Annual MIP increases to 0.850% of the amount borrowed from 0.500%

For homeowners , this switch in MIP decreases the upfront cost of an FHA-insured mortgage, but increases the loan's long-term costs.

Using a $100,000 mortgage as an example, upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.

The update is a huge win for the FHA whose reserve funds are self-proclaimed to be "perilously low".  The extra monies should help recapitalize and stabilize the government group.

The FHA is on pace to back 1.7 million loans this year.

For the majority of refinancing FHA homeowners and home buyers, the MIP change is neither good nor bad -- the borrowing landscape will just looks a bit different.  Yes, loans will cost more to carry each month, but also they'll be less expensive to procure. It's a trade-off and you can apply math formulas to solve for the best time to apply FHA. 

It may be wise to get your FHA case number before October 4, for example, depending on your time frame in the home and the expected life of the mortgage. Or, it may be better to wait until after October 4 to apply.

If you're unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email your loan officer for help.

NOTE : The FHA originally announced an implementation date of September 7. It was subsequently amended to October 4, 2010.

Get Your FHA Mortgage Application Started -- Fees Increase 1/2 Percent Starting Monday, April 5, 2010

Starting Monday, April 5, 2010, getting an FHA mortgage will be more expensive for borrowers.

In new guidelines set forth earlier this year, the FHA announced plans to raise additional revenue and reduce the overall risk of its mortgage portfolio. 

The changes include the following:

1. Increase Upfront Mortgage Insurance Premiums from 1.75% to 2.25% for everyone
2. A plan to reduce seller concessions from 6 percent to 3 percent
3. An increase in minimum downpayment for FICOs 580 or lower

For your own loan, to avoid being subject to higher loan costs, make sure to have your FHA Case Number assigned prior to Monday, April 5, 2010.  That means you'll want to give a full mortgage application before the weekend so your lender can register your loan in time for the deadline.

But don't leave your application to the last minute.

Friday is Good Friday so most banks will be closed. Your true FHA deadline, therefore, is Thursday April 1.

Also worth noting is that the FHA isn't done with its changes.

In its policy statement, the group also announced its plans to petition Congress to raise monthly mortgage insurance premiums.  The FHA's formal request, in summary:

1. Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
2. Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing

For now, the request is neither approved nor acknowledged by Congress. It's merely a request. And in the event that Congress does approves it, the FHA reserves the right to change its projections.  Either way, it means higher costs for consumers. 

The best plan, therefore, is to get your FHA mortgage into underwriting ahead of the switches because borrowing money will be harder, and more costly.

Separating FHA Fact From Fiction : Mortgage Insurance Premiums

The mortgage lending landscape changes a lot.  Rates and guidelines are in constant flux, and it creates preparedness challenges for buyers that aren't paying in cash.

The loan you get today won't always be the loan you get tomorrow.

Because of how frequently bank rules are changing, it can be hard for laypersons to distinguish between mortgage fact and fiction of "what's coming next".

Recently, we saw this with respect to FHA home loans.

January 20, 2010, the FHA issued a press release with new lending guidelines.  Specifically, it announced 3 changes that will be effective starting April 5, 2010:

1. Upfront mortgage insurance premiums increase from 1.75% to 2.25%
2. Allowable seller concession reduced from 6% to 3%
3. FICO scores of 580 or lower are subject to a minimum 10% downpayment

But, also in its official statement, the FHA announced it would ask Congress for permission to raise monthly mortgage insurance premiums.  This is where the rumors started.

Nestled on page 348 of the Budget of the United States Government, Fiscal Year 2011, in a section titled Special Topics, there is a 1-paragraph notation that details the FHA's petition. 

1. Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
2. Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing

For now, the request is neither approved nor acknowledged by Congress. It's merely a request. And in the event that Congress does approves it, that doesn't mean that FHA has to stand by its initial projections.

Truth is, about the only thing we know about the future of FHA lending is that, come April 5, 2010, borrowing money is going to be tougher, and more expensive. These are the facts as we know them today.

Homebuyers should plan accordingly.