FHA has announced changes to the way it collects mortgage insurance premiums with FHA case numbers ordered after Oct 4, 2010. Currently there is an upfront mortgage insurance premium of 2.25% based on the mortgage amount, plus an additional monthly premium of .55% of the mortgage amount. With the new changes, the upfront mortgage insurance premium will drop to 1.00% of the mortgage amount and the monthly premium will increase to .85-.90% of the mortgage amount for all loans that are longer than 15 years.
We still do not have a mortgagee letter with all the changes and rules regarding this, but HUD has let us know it is coming. Originally the change was effective on September 7th, but they moved it back to give everyone time to make the changes to their systems.
FHA insures loans that lenders make to borrowers. Banks don't expect their FHA-backed loans to go bad, but if they do, FHA makes a payment on the loans to the banks as any insurance company would. Homeowners backed FHA by paying the upfront payment and the monthly mortgage insurance payments. FHA has been self funded for many years, however as FHA home loan defaults have climbed recently, so have the payouts to lenders. In 2008, FHA held $19 billion in reserves, today that number is down to $3 billion!
If you are looking at getting an FHA mortgage this fall, you may want to consider when your lender applies for the case number. If you do it before Oct 4th, the upfront mortgage insurance premium will be higher, but your monthly payment will be lower – on Oct 4th, that will change. Basically it will be determined by the date you write your purchase agreement and when the lender orders the case number.
The actual numbers look like this – if your mortgage is $200,000, the current upfront premium is $4500 and the monthly is $91.67. On October 4th, the upfront premium will be $2000 and the monthly will be $141.67. This may affect how much home you can qualify for as your monthly premium will be higher.
If you have questions on this new change, talk to your loan officer. Make sure you are aware of how this change may affect you.