Beginning April 9, 2012, FHA mortgage insurance premiums are rising for most FHA-backed mortgages.
We say "most" because a two-class system is emerging in the FHA-financed world. Going forward, with respect to FHA purchase loans, construction loans and streamline refis, it's become clear that not all FHA homeowners are created equal.
What you pay for your FHA mortgage will depend on for how long you've been an FHA "customer".
In a bid to make its flagship FHA Streamline Refinance program more affordable to U.S. homeowners from Seattle, Washington to Miami, Florida, the FHA has introduced a new concept in mortgage insurance premiums -- tiered MIP.
The longer you've had your mortgage, the less you'll pay for mortgage insurance.
The FHA announced its new MIP schedule in early-March. First-time home buyers making low downpayments via FHA, or recent home buyers looking to refinance to today's low rates will be subject to higher monthly premiums.
Beginning April 9, 2012, all new FHA mortgages require a 1.750% upfront mortgage insurance premium (UFMIP), plus an annual mortgage insurance premium of that ranges from 0.000% to 1.600%, depending on the characteristics of your FHA-backed mortgage.
The new FHA annual MIP schedule is effective for all loans for which an FHA Case Number was assigned on, or after, April 9, 2012.
The MIP schedule for FHA loans with terms greater than 15 years (e.g.; 20-year fixed FHA, 30-year fixed FHA) is as follows :
The schedule for FHA loans with terms less than or equal to 15 years (e.g.; 15-year fixed FHA) is as follows :
Plus, the FHA is adding a second change to annual MIP.
Beginning with FHA Case Numbers assigned on, or after, June 11, 2012, all FHA mortgages for which the loan size exceeds $625,500, an additional 0.250% will be applied to the annual MIP schedule.
As a real-life example, a home buyer in Montgomery County, Maryland would be subject to a 1.75% upfront MIP payment at closing, plus a 1.250% annual mortgage insurance premium if his FHA mortgage is a 30-year fixed rate loan and his downpayment is at the FHA's minimum of 3.5 percent.
Furthermore, if his loan size is at the Montgomery County local loan limit of $729,750, and his FHA Case Number is assigned on, or after, June 11, 2012, he would be subject to an additional 0.250 percent in annual MIP, bringing the total to 1.600% annually.
Upfront MIP is typically added to the loan size as a lump sum. Annual MIP is paid via 12 monthly installments. Both add to the long-term costs of homeownership.
In this case, the Montgomery County homeowner would pay $12,770 in UFMIP plus $973 in MIP monthly.
Not everyone will pay the FHA's new mortgage insurance rates. For FHA-backed homeowners whose mortgages are older; whose loans were endorsed prior to June 1, 2009, FHA mortgage insurance is getting cheaper, not more expensive.
Long-time FHA-backed homeowners can now use the FHA Streamline Refinance program without fear of "more mortgage insurance". The new MIP schedule is favorable and friendly.
Beginning June 11, 2012, all new FHA mortgages replacing a mortgage from prior to June 1, 2009, will pay an upfront mortgage insurance premium of 0.01%, or $10 per $100,000 borrowed.
This is a major reduction off the "full price" UFMIP paid by everyone else.
Also beginning June 11, 2012, if you're replacing an FHA mortgage endorsed prior to June 1, 2009, and your new FHA mortgage has a term greater than 15 years (e.g.; 20-year fixed FHA, 30-year fixed FHA), your new loan's MIP schedule is as follows :
Or, when the new FHA mortgage has a term of 15 years or fewer (e.g.; 15-year fixed FHA), the new loan's MIP schedule is :
Lastly, no matter what size your loan, for loans pre-dating June 1, 2009, the "FHA jumbo" fee of 0.25% is waived in full.
Using the same Montgomery County, Maryland homeowner as an example, assuming his transaction is an FHA Streamline Refinance and his current mortgage's endorsement pre-dates June 1, 2009, his mortgage insurance commitment would be $72.97 paid as upfront MIP and a monthly MIP payment of $334.
That's huge savings -- $12,000 at the time of closing, and 1.05 percent annually.
The FHA's latest mortgage insurance announcement is somewhat tangled. Some of its policies go into effect April 9, 2012. Others are tabled until June 11, 2012.
If you commit too soon to an FHA mortgage -- or commit too late! -- you run the risk of inadvertently slotting yourself into the wrong mortgage insurance premium. schedule. As we saw in the example, a mistake like that can have serious implications to your mortgage, and to your bank account.
Don't make an error here. If you're confused even the slightest bit, talk to a loan officer and work out the timing so you save the most money possible. Be sure to check today's FHA mortgage rates, too. That's a big piece of the puzzle.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)