FHA Making Promised Changes to Mortgage Insurance Premiums

HUD finally announced yesterday that it would be raising the Upfront Mortgage Insurance Premium (MIP) for FHA loans effective April 1, 2012, from 1.00% to 1.75% of the loan amount. Fortunately, the upfront MIP can be financed and amortized over the life of the loan.

HUD had previously reduced the upfront MIP to 1.00% back in October 2010.

Additionally, HUD is mulling two other changes to its popular FHA program – increasing the annual MIP and reducing the seller contribution amount. Slated for June 1, 2012 (not yet confirmed) the annual MIP will increase 10 to 25 basis points depending on the size of the loan. For most borrowers, they will likely see the annual MIP increase from 1.15% to 1.25%. Though it’s called an annual MIP, it is reflected in a borrower’s monthly mortgage payment.

This would be the third increase to the annual MIP since October 2010.

The other proposal under consideration is reducing the seller’s contribution amount from the current 6% to the greater of 3% or $6,000. On a $250,000 loan, that’s still $7,500 in seller contributions, so it’s not likely to make much of an impact for most buyers.

Although, FHA has become popular for condo purchases over the past several years, particularly with more flexible qualification guidelines (provided the condo building is FHA approved), the continued increases in the upfront and annual mortgage insurance premiums are rendering FHA loans less desirable.

Comparatively, well-qualified buyers can obtain conventional condo loans with as little as 5% down and a lower payment amount. And, in some cases, without mortgage insurance (depending on lender and available loan programs).

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