Monday, June 4, 2012
On Monday, June 11, the FHA will change its mortgage insurance premiums for the 5th time in four years. This time, it's creating a "two-tiered" system that benefits long-time FHA homeowners. Going forward, how much you pay in FHA mortgage insurance will be based on for how long you've been an FHA-backed homeowner. FHA Premiums Rise 5 Times In 4 Years The FHA has gained tremendous market share over the last six year. In 2006, the FHA had fewer than 5 percent of purchase mortgage money. Today, that share has grown to 35% or more. And, while that's happened, the FHA has faced the same sort of delinquency issues faced by Fannie Mae and Freddie Mac. Except, what makes the FHA different from Fannie and Freddie is that it has a congressional mandate to maintain a certain level of capital in its reserves. Since 2010, the FHA has been below that mandate. In 2012, it's been below by a lot. Remember that the FHA doesn't make mortgages -- it insures them. And when more loans go bad than were expected, the FHA teeters on bankruptcy. In order to recapitalize itself, therefore, the FHA chose to raise its mortgage insurance premiums (again), using money from its newest customers to fund the defaults on its oldest ones. It's not a good time to be a new FHA mortgage applicant. It's a great time, however, to be everyone else. The Latest FHA MIP Schedule FHA mortgage insurance is broken in to two parts. There's the upfront mortgage insurance payment that's due at closing and added to your loan size; and, there's the annual mortgage insurance premium that's paid monthly and added to your monthly payment. The amount of mortgage insurance paid upfront is the same for all FHA customers. The monthly amount, however, varies by loan term and loan-to-value. Refinancing An FHA Mortgage From Before June 1, 2009 Beginning June 11, 2012, all new FHA mortgages which replace an existing FHA mortgage from prior to June 1, 2009, will pay an upfront mortgage insurance premium of 0.01%, or $10 per $100,000 borrowed, plus a nominal annual mortgage insurance rate. The annual mortgage insurance premium schedule for such "grandfathered" loans is : • 15-year fixed rate mortgage with loan-to-value of 78% or less : No annual MIP required • 15-year fixed rate mortgage with loan-to-value greater than 78% : 0.55% annual rate • 30-year fixed rate mortgage, all loan-to-values: 0.55% annual rate There are no other mortgage insurance premiums due and no other loan fees for using the FHA's program. Note that these low FHA mortgage insurance premiums apply to refinances only. Purchases will not qualify by definition -- they don't replace loans from prior to June 1, 2009. As a real-life example, a homeowner in Philadelphia, Pennsylvania, with a 30-year FHA mortgage of $400,000, would be subject to a $40 upfront MIP expense at closing plus $183 due monthly for annual MIP. New Purchases And Refinancing An FHA Mortgage From Before June 1, 2009 The FHA charges a different set of mortgage insurance premiums, though, to homeowners who refinance a mortgage from after June 1, 2009; and, for home buyers using the FHA for a 3.5% low-downpayment mortgage or otherwise. The FHA charges these mortgage applicants more. Since April 9, 2012, the FHA has assessed non-grandfathered applicants an upfront mortgage insurance premium of 1.750%, or $1,750 per $100,000 borrowed, plus an annual mortgage insurance premium ranging from 0.000% to 1.600%. The annual MIP schedule for newer FHA mortgage varies based on three loan traits : (1) Loan-to-value, (2) Loan term, and (3) Loan size. The annual MIP schedule is as follows : • 15-year loan term, LTV less than, or equal to, 78 percent : No annual MIP required • 15-year loan term, LTV less than, or equal to, 90 percent : 0.35% percent annually • 15-year loan term, LTV greater than 90 percent : 0.60% percent annually • 30-year loan term, LTV less than, or equal to, 95 percent : 1.20% percent annually • 30-year loan term, LTV greater than 95 percent : 1.25% percent annually In addition, all FHA mortgages in high-cost areas where the loan size exceeds $625,500 are subject to an additional 0.250% in annual MIP. As a real-life example, a homeowner in Fairfax, Virginia, with a 30-year FHA mortgage of $729,750, would be subject to a $12,770 upfront MIP expense at closing plus $973 due monthly for annual MIP. Apply Now To Beat The June 11, 2012 Deadline The FHA's newest MIP changes don't go into effect until Monday, June 11. 2012. This means that if you have a "jumbo" FHA loan and you live in a high-cost area, you'll want to apply for your FHA mortgage immediately. It will save you 0.25% annually. Or, if you have a grandfathered FHA loan from before June 1, 2009, you may want to start your loan application ASAP. You don't need to wait until June 11 to lock your rate -- only to get your FHA Case Number. If you start this week, you can still close on your loan in June, and the sooner you start saving money, the better. Be sure to check today's FHA mortgage rates, too. That's a big piece of the puzzle.