New Risk Based Pricing for FHA Mortgage Insurance

Update: the passage of HR 3221, The Housing and Economic Recovery Act of 2008, placed a 1 year moratorium on risked base pricing for FHA mortgage insurance.  This will not go into effect until October 1, 2008.

Effective July 14, 2008, FHA has implemented risked based pricing for monthly and upfront mortgage insurance.  Previously, upfront mortgage insurance on FHA insured loans was always 1.5% of the loan amount and the monthly mortgage insurance was 0.5% of the base loan amount.   Now, depending on the borrowers down payment and credit score, the amount of upfront and monthly mortgage insurance required for FHA loans is staggered.   

Here is a quick breakdown of the new formula for FHA mortgages with 30 year terms (includes FHA ARMs):

Loan to value of 90% or less (minimum 10% down payment)

600 or better mid credit score = 1.25% upfront mortgage insurance (MI) and 0.50% monthly MI.

599 – 560 mid credit score and non-traditional credit = 1.50% upfront MI and 0.50% monthly MI.

559 – 500 mid credit score = 1.75% upfront MI and 0.50% monthly MI.

Loan to value of 90.01% – 95% (5% – 9.99% down)

640 or better mid credit score = 1.25% upfront MI and 0.50% monthly MI.

639 – 600 mid credit score = 1.50% upfront MI and 0.50% monthly MI.

599 – 560 mid credit score and non-traditional credit = 1.75% upfront MI and 0.50% monthly MI.

599 – 500 mid credit score = 2.00% upfront MI and 0.50% monthly MI.

Loan to value greater than 95% (less than 5% down)

850 – 680 mid credit score = 1.25% upfront MI and 0.55% monthly MI.

679 – 640 mid credit score = 1.50% upfront MI and 0.55% monthly MI.

639 – 600 mid credit score = 1.75% upfront MI and 0.55% monthly MI.

599 – 560 mid credit score and non-traditional credit = 2.00% upfront MI and 0.55% monthly MI.

559 – 500 mid credit score = 2.25% upfront MI (may be reduced to 2.00% upfront MI if it’s a first time home buyer who participates with HUD-approved counseling) and 0.55% monthly MI.

Credit scores are determined by the middle of three credit scores when three scores are available.  If a borrower only has two scores, then the lower of the two scores will be used.  When there are more than one borrower, the lowest "mid score" of all borrowers will be used to determine the required amount of mortgage insurance.  For information on non-traditional credit (weak credit history), click here.

NOTE: although FHA is offering mortgage insurance on lower credit scores, most lenders have their own price adjustments on FHA mortgage loans with credit scores under 600 and will not provide a FHA mortgage when a mid score is under 580.

All FHA insured loans have private mortgage insurance–even if the borrower is putting 50% down and will remain on the mortgage for a minimum of 5 years AND 78% of the original loan balance.

Check out the article I wrote at Rain City Guide on these changes which has examples of how this impacts a mortgage loan payment.