Up Front Mortgage Insurance Premium Increases for FHA Loans

by Randy Watson

There are changes coming to FHA's mortgage insurance premiums and I have been getting lots of question on this. I asked Jeff Cruz, Legacy Mutual senior loan officer in San Antonio for some insight on the new program. So, let's review what he explained to me.

HUD has announced that mortgage insurance for FHA loans will increase April 1, 2012. Mortgage insurance, similar to Fannie Mae and Freddie Mac guaranty fees, protect one party from the risks of the borrower becoming delinquent of going into foreclosure.

FHA loans have two tiers of mortgage insurance.

Today an FHA mortgage requires an up-front mortgage insurance premium (MIP) equal to of 1 percent of the loan's amount. Upfront MIP can be added to closing costs, or borrowers can finance it by adding it to the loan amount.

There is also an annual mortgage insurance premium (MIP) that varies by loan type. For 30-year fixed rate mortgage, annual MIP is equal to 1.1% of your loan size for LTVs of 95% or lower. For everyone else, annual MIP is 1.15% of the loan size.

Annual MIP is paid monthly. The formula is (Loan Size) * (MIP Rate) / (12 Months) = Monthly MIP payment.

So what the does the FHA's new mortgage insurance rates mean to FHA mortgage applicants?

Starting April 1, 2012, Upfront MIP for loans raises from 1.000% to 1.750% of the loan size. Annual MIP fees change, too, climbing by 10 basis points.  The higher premium will add about $5 per month to the cost of a typical $150,000 FHA loan.

If you think you'll want an FHA loan for your next mortgage, the best way to avoid the new FHA fees is to have your FHA Case Number assigned before the new FHA MI premiums go into effect April 1, 2012. All existing FHA mortgages will use the "old" MI rates.

Please contact us soon if you are thinking of buying a San Antonio home to avoid the increased upfront MIP and annual MIP fees, too.