Beginning April 9, 2012, the FHA is once again raising mortgage insurance premiums (MIP) on its newly-insured borrowers throughout Indiana and the country. It’s FHA’s fourth such increase in the last two years.
Beginning April 2012, upfront mortgage insurance premiums will be higher by 75 basis points, or 0.75%; and annual mortgage insurance premiums will be higher by 10 basis points per year, or 0.10%. This only applies to new loans. If you have an existing FHA mortgage, your terms will not change.
For borrowers with a loan size of $200,000, the new MIP will add $1,500 in one-time loan costs, plus an on-going, annual $200 increase in total mortgage insurance premiums paid.
All new FHA loans are subject to the increase — purchases and refinances. The FHA is increasing its mortgage insurance premiums because, as an entity, the FHA is insuring a much larger percentage of the U.S. mortgage market than ever before.
In 2006, the FHA insured 2 percent of all purchase-money mortgages. In 2011, that figure jumped to 18 percent. Unfortunately, as the FHA has insured more loans, it’s number of loans in default have climbed, too, forcing the FHA to boost its reserves.
The Upfront MIP is changing from 1% to 1.75% and the Annual MIP is changing from .90% to 1.25%.
Before you panic about this news… the bottom line is that on a $100,000 FHA base loan amount, the payment will increase less than $7 per month as a result of both MIP premium increases.
The increase will affect only new loans with FHA Case numbers ordered on or after April 1, 2012. There are two types of Mortgage Insurance on FHA loans:
1) Upfront MIP is calculated by multiplying the loan amount by 1.75% and then adding that amount to the base loan amount. The “Upfront MIP” is financed into the loan.
2) Annual MIP is calculated by multiplying the loan amount by 1.25% and dividing that total by 12 to equal a monthly amount that is paid as part of the homebuyers total monthly mortgage payment.
To avoid paying the new FHA mortgage insurance premiums, start your FHA mortgage application today. Once your FHA Case Number is assigned, you are in the system and won’t be affected by the increase.
Existing FHA-insured homeowners will not be affected by the change.