FHA Mortgage Insurance Increase

Phoenix Area FHA Mortgage

FHA has changed MI since this post.  Learn more here.

The fact that FHA is tinkering with its mortgage insurance rates should not come as new news.  HUD has kept mortgage lenders and Arizona home-buyers on their toes over the past few years with periodic increases and decreases to FHA mortgage insurance rates.  The most recent change was announced today and as your Arizona FHA Mortgage Loan Officer I want to make sure you are up to speed on HUD’s latest chess move. (if you need help sleeping read the actual FHA news release here – FHA NEWS)

Before we jump into the specific numbers, let’s do a quick recap of how FHA mortgage insurance works.  FHA home-buyers pay mortgage insurance in 2 different ways when utilizing an FHA mortgage:

1.  Monthly Mortgage Insurance: FHA actually calls this “annual mortgage insurance” as it really is an annual fee that is broken up into monthly pieces and then added to an FHA homeowners monthly mortgage payment much like property taxes and homeowners insurance are.  For example if the annual mortgage insurance premium equals $1,200 that FHA homeowner would pay $100 on top of their monthly mortgage payment each month ($1,200 / 12).

2. Up Front Mortgage Insurance Premium: FHA charges each buyer using an FHA mortgage a one time up front insurance premium in addition to the annual premium listed above.  This premium is NOT paid out of pocket.  It is rolled into the FHA buyer’s new mortgage.  For example, let’s say the up front mortgage insurance premium equals $2,000.  If an FHA buyer has a base loan amount (base loan amount = purchase price – down payment) of $200,000 they would end up borrowing a total of $202,000 (base loan amount + up front mortgage insurance premium).

How Much is FHA MI Going Up?

Both the annual mortgage insurance premium factor AND the up front mortgage insurance premium factors are changing/increasing effective April 9, 2012.  This means both mortgage insurance costs will increase on and after April 9th, 2012.

30 YEAR FIXED FHA MI CHANGES (95% or higher loan to value):

Current Annual Mortgage Ins factor  = 1.15%                                      New Mortgage Ins Factor (as of 04/09/12) = 1.25%
Current Up Front Mortgage Ins Factor = 1.0%                                    New Up Front Mortgage Ins Factor (as of 04/09/12) = 1.75%

How does this impact an Arizona area FHA buyer?

Lets look at how each insurance cost is calculated and a before and after comparison of the current and new FHA mortgage insurance factors.

CALCULATIONS:

FHA Calculates monthly mortgage insurance in 2 steps:
Step 1. Loan amount x Annual Mortgage ins. factor = Annual mortgage ins. premium
Step 2. Annual mortgage ins. premium /12 months = Monthly mortgage ins. payment

FHA Calculates Up Front Mortgage Insurance in one 1 step:
1. Loan amount x Up Front MIP Factor = Upfront Mortgage Ins. Premium

Before & after – a real Arizona FHA scenario (on a 30 year fixed mortgage with 3.5% down):

Lets use a sample purchase price of a Phoenix home selling for $233,160.  Based on the minimum required FHA down payment of 3.5% an FHA buyer purchasing this home would have a base loan amount of $225,000 (purchase price minus down payment).   Take a look at how this particular scenario would break down on a 30 year fixed FHA mortgage before and after the FHA mortgage insurance changes.

BEFORE 04/09/12 FHA CHANGES:
Monthly mortgage insurance payment – $215.62
Total amount borrowed – $227,248
Total Monthly payment (including taxes and insurance) – $1516

AFTER 04/09/12 FHA CHANGES:
Monthly mortgage insurance payment – $234.67
Total amount borrowed – $228,936
Total Monthly payment (including taxes and insurance) – $1,542

While this particular FHA buyer would only see a $26 per month increase in payment, they would also be financing an additional $1,688 into their final FHA loan amount.  The bottom line is that this upcoming change is like Martin Lawrence as Big Momma at a Las Vegas buffet, there is just no stopping it.  However, if a buyer is getting ready to move forward and has the option to get in before the hike then why not!  In order to do so, an FHA buyer needs to secure an FHA case number BEFORE April 9th, 2012.  To grab a case number an Arizona FHA Mortgage Lender needs to have an executed purchase contract in hand.  Case numbers can take 24 hours to be assigned so don’t wait until the last minute!

Other FHA loan term changes (for less than 95% loan to value and 15 year fixed FHA loans):

All of the info above is for an FHA loan with a loan to value greater than 95%.  The up front mortgage insurance premium factor for all FHA purchase loan terms and loan to value limits is going from 1% to 1.75%.  However, the annual mortgage insurance factor depends on loan term and loan to value limit.

30 Year fixed Mortgage with a loan to value less than or equal to 95%:
Current Annual MI factor = 1.10%
New Annual MI factor = 1.20%

15 Year fixed Mortgage with a loan to value greater than 90%:
Current Annual MI factor = .50%

New Annual MI factor = .60%

15 Year fixed Mortgage with a loan to value less than or equal to 90%:
Current Annual MI factor = .25%
New Annual MI factor = .35%

APPLY NOW for an FHA mortgage

By Jeremy House

 

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