Breaking Down The FHA Mortgage Changes Coming in April 2012

As a follow up to my FHA Takes Additional Steps to Bolster Capital Reserves post it has been confirmed that effective April 1, 2012 the cost to obtain FHA financing will increase. Most clients have two questions.

1. What is the change in FHA financing?

2. How do they avoid it costing them more?

Mortgage insurance for FHA loans is going to increase on April 1, 2012. FHA mortgage insurance exists today and has two components. The upfront mortgage insurance premium (MIP) which is currently 1% of the loan amount, this can be part of the closing costs or financed into the loan. The second component is the annual mortgage insurance and it varies by loan type as follows.

· 30 year fixed mortgage with less than 95% loan to value (LTV) annual MIP =1.1% of your loan amount.

· 30 year fixed mortgage with more than 95% loan to value (LTV) annual MIP =1.15% of your loan amount

Annual mortgage insurance is paid monthly as part of your mortgage payment.

So, what’s changing?

Any case numbers assigned April 1, 2012 or later will be subject to a 1.75% upfront MIP premium. The annual MIP will increase to 1.2% for loans under $625,500 with a 5% or more down payment, and 1.25% for loans with less than a 5% down payment.

How to avoid it:

If you’re thinking of using FHA financing the only way to avoid the increase is to get your FHA case number assigned before April 1, 2012. All case numbers assigned before that date will fall under the current FHA mortgage insurance premium guidelines. The chart below breaks down what a buyer could save if they started the loan process before the April 1 deadline with a sample sale price of 300k.

Over a $2,100 upfront and $24 a month increase is a substantial amount. If you're on the fence about buying and will be using FHA financing now is the time to get serious.