FHA Mortgage Insurance is going up in April for annual premiums (MIP) that are paid monthly.
The increase in the MIP, depending on the loan to value, will be a change from 1.25% of the loan amount to 1.35% of the loan amount in the yearly premium.
To put this into perspective, let’s consider a $200,000 purchase using FHA financing with the minimum 3.5% down payment for a 30 year loan. Since the UFMIP is added to the loan amount and not paid out of pocket, the loan amount with UFMIP in this case would be $196.377 and the monthly MIP payment would be $220.57 compared monthly MIP payment of $204.06 or a $16.51 increase in monthly payment.
Additionally, effective for new loans in June, the mortgage insurance in this scenario would no longer automatically go away when the loan reaches 78% loan to value as it does currently. Instead, it would continue through the life of the loan. There are different rules for lower loan to value and shorter terms.
According to statements made by FHA and HUD officials, the increase in mortgage insurance is to both strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund (MMI Fund) and to encourage the return of private capital to the housing market.
On Whidbey Island, many of the same customers that would be using FHA as their source of financing will probably be using the USDA guaranteed home loan product as long as they income qualify for the loan.
For those that have too much income for the USDA loan an are not veterans or active duty members, conventional loans with private mortgage insurance (PMI) will be available to offer competition to the FHA loan products.
Major consideration in using a conventional loan versus an FHA loan with limited down payment will be the customer’s credit score. FHA loans don’t have much difference in pricing between 620 credit scores and 780 credit scores (although some), but conventional loans and PMI costs do have a significant difference.
About the author: Fred Chamberlin is a senior loan officer with Guild Mortgage Company in Oak Harbor. He has been in the mortgage origination business for over 20 years and in the lending business for over 30 and authors a number of mortgage related blogs.