FHA is changing (increasing) its monthly mortgage insurance premium for California home buyers again for the third time in 12 months.
For all FHA case numbers assigned on, or after, April 18, 2011, the annual mortgage insurance premiums (MIP) will increase 25 basis points. The last time FHA increased the monthly fee, I warned home buyers back in August why they should care about FHA increasing the mortgage insurance premium. Do you think they might raise it again in the future?
This new change will add $250 ($20/month) to an FHA-insured homeowner’s annual loan costs per $100,000 borrowed, and applies to all borrower’s equally.
What does this mean if you are planning to buy a home using an FHA loan after April 18th?
It means your buying power may be reduced. You may not be able to qualify for as large of a loan….this depends on if you are pushing the envelope with your DTI (debt-to-income ratio). You may want to call your lender and have him/her re-approve you…..or just call me:-)
Why are FHA monthly mortgage insurance premiums are rising?
As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. FHA’s percentage of purchase money business in California’s Inland Empire is now about 60%. This is for home buyers purchasing a primary residence.
Rapid growth like this has strained the FHA’s capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will “significantly strengthen” its reserves. By law, the FHA must maintain a certain minimum level of reserves.
FHA mortgage insurance varies by loan term, and by loan-to-value and, beginning April 18, 2011, the new insurance premiums are as follows:
- 15-year loan term, loan-to-value > 90% : 0.50% per year
- 15-year loan term, loan-to-value <= 90% : 0.25% per year
- 30-year loan term, loan-to-value > 95% : 1.15% per year
- 30-year loan term, loan-to-value <= 95% : 1.10% per year
To calculate your monthly mortgage insurance premium, multiply your starting loan size by your insurance premium, and divide by 12.
There is no change planned to the 1 percent upfront mortgage insurance premium charged by the FHA.
If you want to learn about other home financing options or down payment assistance for your home purchase, we can compare using an USDA, Homepath, or regular conventional mortgage and see which one makes the most sense for your situation. Call me at (951) 215-6119 or shoot me an email brad(at)homeloanartist(dot)com.