On April 5, 2010 FHA increased their up-front mortgage insurance premium to 2.25% from 1.75%. HUD had approval to increase the up-front mortgage insurance premium (UFMIP) but did not have the approval to increase the monthly mortgage insurance factors. Well…with House Bill 5072 (FHA Reform Act of 2010) the FHA monthly mortgage insurance factor could increase from .55% to 1.55%!!
What’s the big deal?
Increasing the UFMIP from 1.75% to 2.25% did not have the drastic impact that increasing monthly mortgage insurance factor from .55% to 1.55% would have. Let’s look at an example of the change to UFMIP:
| 1.75% UFMIP | 2.25% UFMIP | |
|---|---|---|
| Purchase Price | $200,000 | $200,000 |
| Base Loan Amount | $193,000 | $193,000 |
| UFMIP | $3,377.50 | $4,342.50 |
| Full Loan Amount (Base+UFMIP) | $196,377 | $197,342 |
| Principal & Interest (example of 5.5% rate, 30 year fixed) | $1,115.01 | $1,120.49 |
What this shows is that the increase from 1.75% to 2.25% UFMIP changed the monthly payment very little ($5.48/mo). The biggest concern surrounding this increase was the increase to the mortgage balance.
Now, let’s look at the impact of an increase from .55% to 1.55% monthly:
| .55% Monthly MI | 1.55% Monthly MI | |
|---|---|---|
| Purchase Price | $200,000 | $200,000 |
| Full Loan Amount with 2.25% UFMIP | $197,342 | $197,342 |
| Principal & Interest (example of 5.5% rate, 30 year fixed) | $1,120.49 | $1,120.49 |
| Monthly Mortgage Insurance | $88.46 | $249.29 |
| P&I + MI | $1,208.95 | $1,369.78 |
This increase would result in an increase of $160.83 per month! Per Representative Maxine Waters who is the sponsor of this bill,
The bill would allow FHA to increase the cap from 0.55 percent to 1.55 percent for new borrowers with downpayments below 5 percent. However, FHA has said that they will only raise annual premiums to 0.90 percent, and would also use their existing authority to lower the upfront premium back down [emphasis added]. As I understand it, if FHA limits the premium increase to 0.90 percent, new borrowers would only see their monthly payment rise by $42 a month.
With our calculations at $200,000, we show this would result in an increase of $56.29. Of course, each loan amount will result in a different monthly MI payment. Either way, this bill will allow FHA to increase to as high as 1.55% without further approval. This increase in payment will obviously have an impact on the ability to qualify FHA buyers and will reduce the purchasing power from what they have now.
She also mentions FHA lowering the “upfront premium back down”. Although this would be nice it is my opinion that government rarely reduces costs and this change would hardly help FHA buyers per the first example above.
Is this change for sure?
No. Right now H.R. 5072 has merely been introduced. We will have to wait and see what happens over time but stay tuned to LendingAHand.com for updates!
The most recent update on this topic is that the House has passed this bill with enormous support (406 to 4) on 6/10. The bill now goes to the House for vote.
[...] from .55% to as high as 1.55%. We notified you of this possible change April 30,2010 in our post FHA Increasing Mortgage Insurance Factor??. In this post we explained the potential impact this change could have on home buyers using FHA [...]