This is another result of HR 3221, I mentioned in an earlier post that the ceiling was raised for how much could be charged for FHA upfront and monthly mortgage insurance…I recently learned the actual details.
Upfront mortgage insurance will increase from 1.5% to 1.75% for purchases and refinances (not FHA streamlined). Streamlined refinances will be 1.5% and FHA Secure will be 3.0% (hopefully you refinance before you need FHA Secure).
Monthly mortgage insurance will be 0.55% for loans with less than 10% down (or over 90% loan to value) and 0.50% for loan to values equal or greater than 90%.
Currently we have risked based pricing in effect through the end of September 2008 which rewards down payments and better credit scores.
Based on a 90% loan to value and 680 mid score purchase with a loan amount of $400,000, here’s how now and October 1, 2008 compare (using rates I posted Monday for example sake only–this is NOT a rate quote):
FHA case numbers issued NOW through September 30, 2008:
Upfront MI = 1.25%. 400,000 x 1.25% = $5,000. Adjusted loan amount (FHA upfront mortgage insurance may be financed) = $405,000 @ 6.5% for 30 years = principal and interest payment of $2559.88.
Montly mortgage insurance (referred to as annual MIP) is 0.50% = 400,000 x 0.50% = 2000. 2000 divided by 12 months = $166.67.
Total payment not including taxes and insurance = $2726.55
FHA case numbers issued October 1, 2008 and later (at least until the moritoriam is over on September 30, 2009):
Upfront MI = 1.75%. 400,000 x 1.75% = $7,000. Adjusted loan amount = $407,000 @ 6.5% for 30 years = $2572.52.
Monthly mortgage insurance based on this example is the same 0.5% = $166.67 (monthly mortgage insurance is calculated off the base loan amount and not the adjusted loan amount).
Total payment not including taxes and insurance = $2739.19
$12.64 a month may not be enough to have you jump off the fence to buy a home or refinance if the above scenario resembles you. I know that I would rather have the lower financed upfront mortgage insurance ($2000 lower based on this example).
I prefer the risk based pricing model. It makes the most sense to me. Reward more down payment and higher credit and compensate HUD for taking on loans with higher risk (lower down payments and lower credit scores).
FHA’s popularity continues to grow with convetional (Fannie/Freddie) guideines tightening and with the risk based pricing increasing. Do make sure that your Mortgage Professioanal is qualified and approved to do FHA loans–not all originators are.