RETURN TO HOMEMortgage Monday
FHA is increasing the upfront mortgage insurance premium (MIP) from 1% to 1.75% of the loan amount as of April 9th, 2012. The increase is being used to help refund the ever dwindling reserves of the Federal Housing Administration (FHA). This is the fourth time in three years that the cost of the premium has been increased, hoping to cover losses already accrued and deter the risky borrowers from entering the market at all.
The increase does not apply to all FHA loans that have been registered and assigned an FHA Case number before the date. It does not mean that the loan needed to be approved or even submitted, just assigned the number. So, if your loan is currently in the works but not yet approved, you are safe from the increase.
The annual MIP calculation will also be increased, but not as significantly. Only 0.01% increase over the premium for loans currently registered. With a loan-to-value over 95%, the new annual MIP will be 1.25%. For all loans under 95% loan-to-value, the annual MIP shall be 1.20%.
In June, 2012 there will be an additional increase to the annual MIP for certain loan amounts.
The increase does not apply to the Streamline FHA Refinance, however. The existing FHA borrowers will receive a discount in both the upfront and the annual MIP. The upfront MIP will be reduced to 0.01% of the loan amount and the annual MIP will be .55%. Please note the loans much have been taken out prior to June 1, 2009.This will apply to mortgages with case numbers assigned after June 1, 2012. With streamline, please note that the interest rate will be a bit higher.
This increase in closing costs might deter homeowners from choosing the FHA loan as alternative. Why are they increasing it to price the consumer out of the market? Because the FHA does not want to do more loans until they have replenished the reserves for insurance and until the levels for foreclosures have backed off a little. Neither of which have happened yet since the big crash.
What are the alternatives? Regular conforming loan amounts with PMI or a first a second mortgage used to split the loan and have a first mortgage of 80% loan to value or lower. Sound familiar?