Changes to FHA Mortgage Loans
New Risk Layering Added to FHA Mortgages
Effective July 14, 2008 FHA mortgage loans will charge new mortgage insurance premiums based on a combination of credit scores and percentage down. Currently all FHA mortgage loans enjoy the same premiums.
Right now, an FHA mortgage loan requires 1.5% of the loan amount to be paid up front for mortgage insurance, plus an annual mortgage insurance premium 0.50%, paid monthly. Using a $100,000 loan amount, the upfront mortgage insurance premium would be $1,500 and the monthly insurance premium would be $41.67. (0.50% annual = $500 / 12 monthly payments = $41.67 a month.)
Lets see how this new Risk Layering will impact FHA mortgages after July 14.
Most FHA purchases are done using the minimum 3% down. So with the new risk layering, someone with a credit score of 640 would see an upfront fee of 1.5% and an annual rate of 0.55%. Not bad! Realistically you are talking a difference of roughly $4 a month.
However, someone with a credit score of 550 would see an upfront premium of 2.25% and an annual premium of 0.55%. On a $100,000 mortgage loan, this equates to an upfront premium of $2,250 and $45.83 a month for the annual premium.
The good news is that the upfront premium can be financed back into the loan amount, so the additional $750 won’t be required in cash! And this small amount won’t make any significant monthly payment changes that will hurt your wallet!
This is a small change and not one to be too upset about. Yes, its an increase in premiums, but with the increase of foreclosures across the country, HUD has to ensure that they can continue to offer these great FHA mortgage loans!
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Ed,
Good information about this recent change. I am not sure HUD really needs this money. It was my understanding that the MIP fund was carrying a huge excess and has been described by some as a fee that should be reduced because the size of the fund has greatly exceeded HUD estimates of the amount needed as a reserve to insure the loan portfolio.