FHA Raises Costs…Again….And Again

January 31st, 2013


The Federal Housing Administration (FHA) is soon going to raise their mortgage insurance costs, again. FHA is the largest insurer of low down payment mortgages. It has been announced recently that they are in trouble and may be in need of a taxpayer bailout. This told me at that time that their fees would increase soon. Soon has finally arrived.

The FHA mortgage fee details are:

  1. Mortgage insurance premiums on loans up to $417,000 will go up by 10 basis points, or 0.1%. Currently people who use FHA for a mortgage this size pay a premium of 1.25%, now they will pay a premium of 1.35%. This premium is a percentage of the loan amount and divided by 12 to get the monthly mortgage insurance cost. For example:
    – $400,000 loan, OLD method: $400,000 x 1.25% = $5,000 divided by 12 monthly payments = $416.67 a month
    – $400,000 loan, NEW method: $400,000 x 1.35% = $5,400 divided by 12 monthly payments = $450.00 a month
  2. FHA will also raise mortgage insurance premiums for borrowers on loans of $625,000 up to the limit of $729,750 by 5 basis points, or 0.05%.
  3. FHA will also increase the minimum down payment requirement on loans over $625,500 up to $729,750 to 5% from 3.5%.
  4. FHA will also require that new FHA borrowers continue paying mortgage insurance premiums for the life of the loan. An FHA policy dating from 2001 had allowed borrowers to cancel their mortgage insurance when their outstanding balance reached 78% of the original principal balance. As a result of that policy, FHA’s Mutual Mortgage Insurance Fund has foregone billions of dollars in premium revenue from mortgages originated in the past few years. Sounds like they now need that revenue.

Why are they raising fees?

This is on top of multiple other mortgage insurance cost increases over the last couple of years. FHA is doing all of this to try and avoid a bailout from the taxpayers, so FHA has asked Congress for more authority to make these changes.

Just a few years ago the mortgage insurance premium was only 0.5% of the loan amount. Now we are approaching triple that! I was already surprised last year at the cost increase for an FHA loan. Now the cost increase has been pushed even further. It really makes me wonder how many people can afford to take a low down payment FHA loan. In the past it seemed like you could get an FHA loan for almost everyone. It really was like an “all-you-can-eat” buffet. Now, the way that mortgage insurance cost is increasing, the pool of people that can eat at the FHA table is dwindling.

Most of these changes are effective for FHA loans starting on or after April 1, 2013.

Effective with FHA loans on or after June 3, 2013, for loans with a Loan-To-Value above 90%, the annual MIP will be collected for the life of the loan. Currently the MIP can be dropped when the loan is 78% of the original property value.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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