Higher (And Lower) FHA Mortgage Insurance Premiums Start October 4, 2010

FHA mortgage insurance premiums ready to change for the second time this year, the FHA is modifying mortgage insurance.

Beginning with FHA case numbers issued on or after October 4, 2010, the FHA is changing its upfront and annual mortgage insurance premium structure.

Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:

* Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
* Annual MIP increases to 0.850% of the amount borrowed from 0.500%

For homeowners, this switch in MIP decreases the upfront cost of an FHA-insured mortgage, but increases the loan’s long-term costs.

Using a $100,000 mortgage as an example, upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.

The update is a huge win for the FHA whose reserve funds are self-proclaimed to be “perilously low”. The extra monies should help recapitalize and stabilize the government group.

The FHA is on pace to back 1.7 million loans this year.

For the majority of refinancing FHA homeowners and home buyers, the MIP change is neither good nor bad — the borrowing landscape will just looks a bit different. Most people procuring an FHA loan are not choosing between the MIP costs, but are taking the loan because they are putting less than 10% and/or their credit score is low, as low as 620 and/or they have other qualifying specifics that FHA will be okay with and other programs will not. While the loans will be less expensive to procure, they will cost more to carry each month, and therefore more difficult to qualify for.

It may be wise to get your FHA case number before October 4, for example, depending on your time frame in the home and the expected life of the mortgage. Or, it may be better to wait until after October 4 to apply.

If you’re unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email me for help and advice.

NOTE : The FHA originally announced an implementation date of September 7. It was subsequently amended to October 4, 2010.