FHA mortgage insurance increases

FHA Mortgages Are Now More Expensive

FHA loans are guaranteed by the federal government. Should a home owner default on her monthly payments, the U.S. Department of Housing and Urban (HUD) development has committed to paying the lender a percentage of the default on the debtor's behalf. Part of the payments made on an FHA loan is based on a monthly insurance fee, otherwise known as a mortgage insurance premium (MIP). The second increase in MIP since October 2010 took effect on Monday 18, 2011. The upfront MIP remained unchaged at 1%.

What this means is on a $200,000 loan the monthly payment inceased by $42. This is in addition to a previous increase of $58 per month last October. Why the increase? According to David H. Stevens, FHA Commissioner, capital reseves have been below 2% for the previous two accounting periods. Raising the the premiums will allow the FHA to increase revenues.

This news coupled with the last six month's upward mortgage rate trends with rates at 4.75% today opposed to 4% Otober 8, 2010. This should have buyers and sellers who are sitting on the fence to jump squarely into the market, with both feet.