FHA has announced it will make changes to it’s Mortgage Insurance Program. These changes will take effect for all new FHA case numbers issued as of October 4, 2010.
FHA loans require both an upfront mortgage insurance fee and a monthly mortgage insurance fee. The FHA has announced a change to these fees for all new FHA case numbers issued as of October 4th. 2010
The Upfront insurance fee is financed into your loan, added to the base loan amount once your down payment is deducted.
FHA case numbers can be ordered once a contract to purchase has been made and the loan application is signed.
Current FHA Policy, through October 3rd, 2010
Upfront mortgage insurance 2.25%
Monthly mortgage insurance 0.55%
New FHA Policy, as of October 4, 2010
Upfront mortgage insurance 1.0%
Monthly mortgage insurance 0.90%
What effect this will have to a borrower: While the loan amount will be lower due to the reduced Upfront MI cost, the monthly payment will be higher.
Typical loan scenario for a home price of $200,000
Net increase of (3.73%) $40.76 in your monthly payment.
Sales Price: $200,000 less FHA required down payment of $7,000 (3.5%) =
Base loan amount of $193,000
Current MI policy: $193,000 + Upfront mi 2.25% ($4,342) = total loan amount of $197,342
$197,342 @ 4.5% 30 year fixed rate = monthly principal & interest payment of $999.90 + monthly mi at .55% is $91.67 for a total of $1,091.67
New MI policy $193,000 + Upfront mi 1.0% ($1,930) = total loan amount of $194,930
$194,930 @ 4.5% 30 year fixed rate = monthly principal & interest payment of $987.68 + monthly mi at .90% is $144.75 for a total of $1,132.43
FHA loans have been a great way for Maine homeowners to qualify for high loan to value mortgages. With these new changes, look for Private Mortgage Insurance companies to become very aggressive with perhaps much lower monthly mortgage insurance rates.
To learn more about FHA and Private mortgage insurance, contact your Maine Mortgage Specialist today.