There is more change on the way for FHA mortgage insurance premiums, after legislation from the House of Representatives this past week was passed, allowing for an increase annual mortgage insurance premiums. That change will go into effect September 7, 2010.
All FHA loans have two types of mortgage insurance premiums that serve to protect HUD, which backs FHA loans, to insure themselves over potential losses on mortgage. Those are, the upfront mortgage insurance premium, which is paid is added to the loan amount borrowed in a lump sum at closing. Add the annual mortgage insurance premium, which is paid for on a monthly basis with one’s mortgage payment.
In April, the upfront mortgage insurance premium was raised from 1.75% to 2.25% of the loan amount being insured, making FHA loans more costly upfront for borrowers. For instance, if you were taking out a $200,000 loan, this translated to an increase in your upfront mortgage insurance premium in the amount of $1,000.
However, recently Housing and Urban Development (HUD) has said that if they were given the authority to increase the annual mortgage insurance premiums, that they could reduce the upfront mortgage insurance premiums to as low as 1%.
That brings us back to the current, legislation, HR 5981, which has been now approved allowing HUD to raise the statutory cap on annual mortgage insurance premiums from 0.55% to 1.55%.
HUD was quick to respond and the mortgage insurance premiums are already scheduled to go into effect September 7th. HUD plans to increase annual premiums for FHA mortgage insurance to 0.85% for borrowers with loan-to-value ratios of up to 95 percent and to 0.9% for borrowers with higher LTVs. In addition, the upfront mortgage insurance premium as well is set to drop to 1%.
The way premiums are currently structured, a borrower taking out a $200,000 loan with the 3.5% minimum down payment pays an upfront premium of about $4,500, plus $1,100 a year in annual premiums.
In addition, the upfront premium roll back to 1% would mean that a borrower would pay an upfront premium of about $2,000, plus $1,800 a year in annual premiums. The $700 increase in annual premiums would translate into an additional $58 a month on their mortgage payment.
So, if you are waiting to buy…you may want to get in on the low rates now…give us a call today @ 480-889-1424.
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