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05 AugFHA Mortgage Insurance May Go Up
Just one more step before HUD will have the ability to increase monthly mortgage insurance premiums as high as 1.55%. Last night, August 4, 2010, the Senate approved with unanimous support to approve HR 5981. The last step in the process to approve this bill is to obtain the president’s signature.
The Change
With the approval of this bill, HUD will be able to increase their monthly mortgage insurance 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 financing.
Here is a chart and quote that explains shows the potential impact:
| .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.
So let’s say that HUD only increases it to .9% with a 1% up-front mortgage insurance premium (UFMIP):
| .55% Monthly | .9% Monthly MI | |
|---|---|---|
| Purchase Price | $200,000 | $200,000 |
| Full Loan Amount with UFMIP | $197,342 (2.25% UFMIP) | $194,930 (1% UFMIP) |
| Principal & Interest (example of 5.5% rate, 30 year fixed) | $1,120.49 | $1,106.79 |
| Monthly Mortgage Insurance | $88.46 (.55%) | $144.75 (.9%) |
| P&I + MI | $1,208.95 | $1,251.54 |
The Impact
Assuming HUD does what they say they will do, buyers will still see an increase of $42.59/mo. That will impact buyers with the amount they can qualify for in this example by $7,500. Instead of now qualifying for a $200,000 they would only qualify for a $192,500 priced home.
The Mortgage Banker’s Association agrees with this change:
“While premium increases are never ideal, this bill was necessary to help improve the strength and stability of FHA’s single family programs,” commented Story. “We are encouraged that FHA Commissioner Stevens has indicated he may not need to raise premiums to the maximum, and we believe that that a small increase in the annual premium, coupled with a decrease in FHA’s upfront premium, will help stabilize FHA while lowering closing costs for many borrowers.”
What Do You Think?
Let us know what you think about this.
Do you think this is a good change?
Do you think that this will be the last change to mortgage insurance for FHA in the near future?
Do you think this will have a small or big impact on potential customers?
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HUD Commissioner just released that:
“It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 year.”
Another update. Yesterday HUD released the that Sept 7 date was a bit aggressive and have changed the effective date to Oct 4.
[...] August 5, 2010 we told you about the possible change to FHA mortgage insurance. We then updated you on August 11 that the effective date would be October 4 (that’s [...]