FHA Insurance Premium Costs Soon to Increase

Posted by on Thursday, February 14th, 2013 at 10:01pm.

FHA (Federal Housing Authority) loans are a great option for home buyers who would otherwise be precluded from financing due to compromising factors such as limited down payment funds, poor credit ratings, or insufficient income or assets. The FHA does not actually offer financing. Instead, it insures higher risk loans -and the cost of this insurance is paid for by every borrower who gets an FHA loan. Nonetheless, for those lacking other sources of funding, FHA loans have been a bargain, opening the door to home ownership for millions buyers with down payment funds of as little as 3.5% of the purchase price.

Over the past few years, the cost of FHA loans has steadily risen through increases to the one-time, Up-Front Mortgage Insurance Premium (UFMIP) and the annual Mortgage Insurance Premium (MIP) that borrowers pay on a monthly basis. The one-time UFMIP is currently assessed at 1.75% of the base loan amount being financed. The UFMIP cost is expected to remain the same for the foreseeable future and can still be added to the base loan amount for increased financing. Unfortunately, beginning April 1, 2013, the cost and terms of the MIP on FHA loans will be less kind. 

The FHA is making significant changes to both the Annual Mortgage Insurance Premium (MIP) and the minimum number of years MIP must be carried.  Previously, the annual MIP could be cancelled once the LTV (Loan-to-Value) ratio reached 78% or less, and with satisfaction of a minimum five-year collection period. 15-year term loans with LTV ratios of 78% or less did not require annual MIP. 

Changes in MIP Minimum Duration Period, beginning June 3, 2013

Loans with LTV ratios of 90% or less: The annual MIP will remain in effect for a minimum period of 11 years. 

Loans with LTV ratios over 90%: The annual MIP will remain in effect for the duration of the loan.  

Change in MIP Premiums

Annual Mortgage Insurance Premiums are percentage based on the given loan size. The applicable percentage is a function of the loan-to-value ratio and the percentages are listed as " bps" for basis points. To calculate the monthly premium, you take the bps or percentage of the loan size and divide it by 12 to figure out the monthly payment. For example: a $100,000 loan with a 120 bps premium would be figured by calculating 120% of $100,000 for an annual premium of $1200. Divided by 12, the monthly MIP payment collected with the mortgage payment would come to $100.

Effective Date: April 1, 2013

TERM OVER 15 YEARS (30-Year)

Base Loan Amount

LTV

Previous MIP

New MIP

$625,000 or Less

95% or Less

120 bps

130 bps

$625,000 or Less

Over 95%

125 bps

135 bps

Over $625,000

95% or Less

145 bps

150 bps

Over $625,000

Over 95%

150 bps

155 bps

 

TERM 15 YEARS OR LESS

Base Loan Amount

LTV

Previous MIP

New MIP

$625,000 or Less

78.01% - 90.00%

35 bps

45 bps

$625,000 or Less

Over 90%

60 bps

70 bps

Over $625,000

78.01% - 90.00%

60 bps

70 bps

Over $625,000

Over 95%

85 bps

95 bps

 

TERM 15 YEARS OR LESS

Base Loan Amount

LTV

Previous MIP

New MIP

Any Amount

78.01% or Less

0 bps

45 bps

Leave a Comment