(Blog post has been updated to reflect the new change date of 4/9/12, per FHA Mortgage Letter 12-4)

It’s happening again… FHA Upfront Mortgage Insurance Premiums, as well as the monthly Mortgage Insurance charges, are set to increase on April 9, 2012.  If you need an FHA loan, get in now before the changes are in effect!

What exactly is increasing?

Firstly, the Upfront Mortgage Insurance Premium (UFMIP): It is currently 1.0% of the loan amount, but will go up to 1.75% on April 9th.  The UFMIP can be financed into the loan amount, which usually makes sense from a numbers-perspective.

Secondly, the Annual Mortgage Insurance (which is paid monthly) is also increasing.  It is currently 1.15% for Loan-to-Value (LTV) ratios above 95.0% and 1.10% for LTVs 95.0% and below.  On April 9th, it will increase by .10% for loans under $625,500, and will increase by .35% for loans above $625,500.

Why is it increasing?

“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Carol Galante, Acting FHA Commissioner.  In addition, the “Temporary Payroll Tax Cut Continuation Act of 2011” has mandated the increase.  This is the same Act that brought us increased Guarantee Fees.

What does this mean to you, if you are an FHA borrower?

Let’s take a look at how it will change, assuming a purchase price of $500k with the minimum required down payment of 3.5%.  Numbers take into account just the mortgage payment (Principal & Interest) and Mortgage Insurance, as these are the items that are affected by the change.

Payment based on current charges

$482,500 base loan amount + financing FHA’s 1.0% UFMIP ($4,825) = Total loan amount of $487,325.

Current 30 Year Fixed FHA interest rate is 3.75% (APR 3.817%).

• Mortgage Payment: $2256.88
• Mortgage Insurance (1.15%): $462.40

TOTAL: $2719.28

Payment based on charges as of 4/9/12, assuming interest rate remains the same

$482,500 base loan amount + financing FHA’s 1.75% UFMIP ($8,443.75) = Total loan amount of $490,943.75.

• Mortgage Payment: $2273.64
• Mortgage Insurance (1.25%): $502.60

TOTAL: $2776.24

So purchasing (or refinancing) the same home after April 9th will result in an increase of $56.96/month.

If you need help or are seeking advice on an FHA loan, please let me know.