Colorado Mortgage Broker

For the second time this year, FHA mortgage insurance will be modified.

Beginning with FHA case numbers issued on or after October 4, 2010, the FHA is changing its upfront and annual mortgage insurance premium structure.

Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:

• Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
• Annual MIP increases to 0.850% of the amount borrowed from 0.500%

For homeowners in Colorado and everywhere else , this switch in MIP decreases the upfront cost of an FHA mortgage, but increases the loan's long-term costs.

Using a $100,000 mortgage as an example, upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.

The update is a huge win for the FHA whose reserve funds are self-proclaimed to be "perilously low".  The extra monies should help recapitalize and stabilize the government group.

The FHA is on pace to back 1.7 million loans this year.

For the majority of refinancing FHA homeowners and home buyers, the MIP change is neither good nor bad -- the borrowing landscape will just looks a bit different.  Yes, loans will cost more to carry each month, but also they'll be less expensive to procure. It's a trade-off and you can apply math formulas to solve for the best time to apply FHA. 

It may be wise to get your FHA case number before October 4, for example, depending on your time frame in the home and the expected life of the mortgage. Or, it may be better to wait until after October 4 to apply.

If you're unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email your loan officer for help.

NOTE : The FHA originally announced an implementation date of September 7 as I previouly wrote about (FHA Mortgage Insurance Premiums to Change). It was subsequently amended to October 4, 2010.

Why FHA Mortgage Insurance Premiums Are Going Up - RJ Baxter, First Mortgage Corp

As you probably already know, FHA mortgage insurance premiums are going up this spring, on a date not yet specified.  Rumors have been swirling about this for months, but now it is a reality. 

This change will undoubtedly make it harder for consumers to qualify to buy a home.  So why in light of a struggling housing market are FHA mortgage insurance premiums going up?

The reason is fairly straight-forward.  FHA now insures close to 30% of the nation's mortgages, up sharply over the past couple of years as conventional loan have become very difficult for many people to qualify for.  This high level of insured debt has put a stress on FHA's reserves that are required in order to maintain their portfolio.  For that reason, in order to keep lending, which is critical in today's market, FHA has devised this idea of increased FHA mortgage insurance premiums in order to raise capital to insure more mortgages.

Makes sense, right?  But what will be the effect on the consumer?  Part of the proposal is to increase the up-front mortgage insurance premium (UFMIP) to 2.25% this spring from the current level of 1.75%.  This is an increase of $1000 on a $200,000 mortgage.  In addition, a proposal is in the works to increase the monthly MIP from the current .55% (.55% x  loan amt / 12 months = monthly).  This would mean an increased payment and more difficulty qualifying for some.

This coupled with the inevitable rise in mortgage rates has me concerned.  With the housing market showing some signs of life, will increasing FHA mortgage insurance premiums add to the factors putting a damper on the housing coming-out party?  Increased rates and borrowing costs along with the end of the first-time homebuyer tax credit could be a serious crunch on any housing recovery we are hoping for this year.

Good read on this topic:  FHA Loans Get Dramatically Costlier - from MSN Money Online