FHA Mortgage Insurance Premiums Set to Change October 4, 2010
For the second time this year HUD has decided to make changes to the up front mortgage insurance premium and monthly premium. Earlier this year HUD increased the upfront mortgage insurance premium from 1.75% of the loan amount to 2.25% of the loan amount. The upfront mortgage insurance is financed, so it did not affect the upfront amount required to purchase a home except they did increase the down payment from 3.0% to 3.5%. Earlier this year they also increased the monthly mortgage insurance premiums from a factor of .50 to .55. These premiums are based on 30 year fixed FHA mortgage with a loan to value greater than 95%
Now all FHA case numbers pulled on or after October 4, 2010 for 30 year fixed rate FHA mortgages with loan to value greater than 95% will only pay a 1.0% upfront mortgage insurance premium. The upfront mortgage insurance premium will still be financed like it has been in the past. HUD has also decided to increase the monthly mortgage insurance premium form a factor of .55 to .90.
What do this mean in dollars and cents?
Example 1 – $100,000 mortgage under current FHA guidelines
Base Loan Amount: $100,000
Loan Amount with 2.25% up front mortgage insurance = $102,250
Principle and interest payment on $102,250 at 4.5% is $518.09
Monthly mortgage insurance premium at .55 is $45.83
Total payment with out taxes and insurance is $563.92
As of October 4, 2010
With a bases loan amount of $100,000 plus the 1.0% upfront mortgage insurance premium will require the home buyer to only finance the $101,000.
The principle and interest payment on $101,000 = $511.75
Monthly mortgage insurance at . 90 will equal $75.00 a month
Total payment without taxes and insurance equals $586.75
The changes in the FHA mortgage insurance will cost the home buyer $22.83 more with $100,000 base loan amount.
People are speculating with these changes many of the private mortgage insurance companies who have pulled out or greatly restricted the availability of private mortgage insurance will bring PMI back to the market place for high loan to value mortgages.
This may help to drive some borrowers back into conventional financing. Not sure if this is HUD’s intent, but I don’t think they will complain since their market share is currently greater than what HUD prefers. HUD’s mission is to serve the under served. Lately the have been instrumental in sustaining what is left of the housing market. FHA has been then most viable loan product for people with minimal funds for down payment and I don’t think that is HUD’s intent.
We will see if the experts are right in coming months if private mortgage insurance become more readily available.