Leave a Comment It is about to get more expensive for people to get an FHA loan. Back in February, HUD announced that starting April 18, when you get an FHA loan, you can expect your monthly mortgage payment to be slightly higher thanks to higher Mortgage Insurance Premiums required by HUD.
FHA Mortgage Insurance Premium: Required on All FHA Loans When you get an FHA loan, there are two types of mortgage insurance that is required to be paid by the borrower:
■Up Front Mortgage Insurance Premium (also known as UFMIP)
■Monthly Mortgage Insurance Premium (also knowns as MI or MIP)
The change to FHA mortgage insurance starting on April 18 is a change to the monthly mortgage insurance premium, or MIP. Technically, the monthly mortgage premium is calculated as an annual amount and then paid monthly — but it is often referred to as a monthly mortgage insurance premium.
How much of a change will there be starting April 18? It depends on your loan term and how much money you are putting down (which will determine your loan-to-value ratio). Here is a simple breakdown:
■15-year loans with over 90% loan-to-value = 0.50% (up from 0.25)
■15-year loans with under 90% loan-to-value = 0.25% (up from 0)
■30-year loans with over 95% loan-to-value = 1.15% (up from .90)
■30-year loans with under 95% loan-to-value = 1.10% (up from .85)
FHA MIP Rising: How Much More Expensive?
In terms of monthly mortgage payments, how much more will these changes cost the average consumer?
Here is what someone with an FHA loan would pay if they got their loan prior to the change assuming a $200,000 loan amount with a 30-year loan and 3.5% down payment:
200,000 x .90% = $1,800 annually or $150 paid in FHA MIP each month.
And here is what they look like after the April 18, 2011 change:
200,000 x 1.10% = $2,200 annually or $183.33 paid in FHA MIP each month.
Total difference in monthly payment due to the increase in FHA MIP? $33.33 Same FHA loan. Same FHA fixed rate. Same 30-year loan term. Same FHA lender. Just more expensive.
Justin McHood works for Academy Mortgage and is based in Chandler, AZ.