FHA’s MIP Increase

Just when you thought the world of home finance could not get more exciting, more changes are headed our way in the form of mortgages.

OK, I’m going to type the following but then explain it, so bear with me.

Effective for case numbers assigned on or after April 18th, 2011, FHA is increasing the Annual MIP on all forward mortgages by .25%. For an FHA loan where the home buyer makes the minimum 3.5% down payment, their MI will increase from .90% to 1.15%. And though that sounds scary and monetarily foreboding, it’s not that complicated.

First, What is an MIP? Well, the Federal Housing Administration (FHA) encourages mortgage lenders to approve loans for buyers by promising to pay FHA-insured mortgages in full if buyers default on the loans. Collecting the FHA mortgage insurance premium (MIP) on every loan allows the FHA to make good on those promises. Most FHA loans require two types of MIP payments: an upfront premium paid in full at closing, and an annual premium paid monthly over the life of the loan.

FHA’s guidelines are very lenient, although most lenders have overlays in order to bolster the product, and claim that borrowers with credit scores of 580 or more can put down as little as 3.5 percent. The FHA will increase its annual mortgage insurance premium by 0.10 of a percentage point for loans under $625,500. This annual premium is broken down in monthly payments. The upfront mortgage premium is also increasing by 0.75 of a percentage point, bringing the premium to 1.75 percent of the loan amount, which can be financed/added into the mortgage.

What does this mean for you? In the Mortgagee letter issued by HUD, they state that they anticipate this change will have minimal impact on borrowers but will significantly strengthen the Mortgage Insurance Fund.  While I would agree that an extra .25% is not huge, You can save that extra .25% by going under agreement in time for the lender to order the FHA case number prior to April 18th. And you can always put down more than 3.5%

See, not so scary.

If you have questions or need to discuss mortgage options,

Please call Jeannie Bolger, Sr. Loan Officer for more information.

Or call me for more information about the market: 602-456-9388.