ALERT: FHA Mortgage Insurance Fee Hikes April & June 2012

HUD today announced that mortgage insurance for FHA loans will increase April 1 and June 1.

Characteristically, the announcement isn’t clear on the impact to consumer borrowers, so here’s a quick briefing.

If you’re getting a home loan with less than 20% down, it’ll have mortgage insurance (MI), and there are two kinds: private (or PMI) and FHA MI. The FHA loans have better rates and easier approvals than PMI loans.

Right now, FHA has two tiers of MI:

(1) Up front MI is 1% of loan amount. It can be added to closing costs, or you can finance it by adding it to the loan amount.

(2) Annual MI is 1.1% of loan amount if your down payment is 5% or more, or 1.15% of loan amount if your down payment is less than 5% (you can go as low as 3.5% down with FHA). These annual fees are paid monthly. The calculation is loan amount x MI rate / 12mo = monthly MI payment.

Effective with today’s announcement, the two tiers of FHA MI change as follows:

(1) Up front MI for loans up $729,750 (EFFECTIVE APRIL 1): will be 1.75% of loan amount

(2a) Annual MI for loans up to $729,750 (EFFECTIVE APRIL 1): will be 1.2% of loan amount if your down payment is 5% or more, or 1.25% of loan amount if your down payment is less than 5%.

(2b) Annual MI for loans $625,501 to 729,750 (EFFECTIVE JUNE 1): will be 1.45% of loan amount if your down payment is 5% or more, or 1.5% of loan amount if your down payment is less than 5%.

Note that FHA loans go up to $729,750 by county (look up your loan limits here), and the Fannie/Freddie (non-FHA) limits are only $625,500. This is why FHA is implementing higher annual MI fees for those higher tier loans as of June 1. FHA mortgage insurance for loans to $625,500 will remain at the level shown in 2a after June 1.

If you have an FHA loan you’ve been waiting to refinance, do it now.

If you’re a home shopper using FHA financing, you’ll need to be in contract before the effective dates above to have the current, lower mortgage insurance fees. If your shopping period will take longer, ask your lender to run new scenarios to see how these fee hikes change your pre-approval.
FHA Takes Steps To Bolster Capital Reserves

  • JG

    great… let’s tell people how much money they can save by refinancing only to charge them more in MI.. dahhh.. stupid!

  • Mcd

    FHA is supposedly for people that can afford much so let’s double the mortgage insurance so they can not even afford an FHA loan….ridiculous

  • The Basis Point

    JG and Mcd thanks for commenting…

    On Mcd’s point, FHA isn’t actually structured for affordability as much as you think, to get approved borrowers must qualify (using max 45% debt-to-income ratio) which means they have to make good money. It’s really about the low down payment, so FHA (at least in a higher cost area where I am) is more for good earners who, for one reason or another (early in career, recent run of higher expenses, etc) haven’t saved enough for a 20% down payment.

    On JG’s point, you’re right as long as rates are a bit higher. But FHA 30yr loans have been tracking at about 3.25 for awhile now which means that even a borrower with the previously half-lower FHA mortgage insurance still benefits. Then the question is: how long will they be in the home. There are two ways FHA MI goes away: (1) after 5 years, and (2) if loan balance at that time is 78% or less of of value at time loan was put in place. So for borrowers who will be in home medium to longer term to meet these thresholds, they end up with a 3.25% rate and no MI for remaining years of loan. Obviously it’s all case-by-case analysis but these new higher MI fees weren’t working for refis on borrowers with the lower MI until rates came down a bit more.

    Interesting stuff. Thanks again for comments.

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