FHA financing has grown in popularity in the past few years with home buyers because it requires just 3.5% down and comes with less stringent qualifying criteria than conventional financing. Home buyers who might have difficulty qualifying for a conventional loan because of somewhat low credit scores or a past foreclosure, bankruptcy, short sale, or loan mod often can get a great FHA mortgage. FHA is a great way to go, but unfortunately, it's about to get a lot more expensive.
Though FHA loans are a great home financing option, the more lenient qualifying standards do come with some compromises. Borrowers who take out an FHA loan are required to pay two types of mortgage insurance: annual MIP (mortgage insurance premium), which is paid on an annual basis in 12 installments as part of your regular mortgage payment, and UFMIP (upfront mortgage insurance premium), which is paid once at loan closing.
Thanks to the real estate bust and high mortgage default rates, the Federal Housing Administration (FHA) has been running tight on cash. To help shore up its finances, FHA has been raising mortgage insurance rates on a regular basis over the past few years, and unfortunately, this year will be no different. Mortgage insurance for FHA loans is about to get more expensive yet again.
The following are some important changes that will apply to FHA case numbers ordered on or after June 3, 2013:
1) For all loan terms (15-year, 30-year, etc.), annual MIP will apply for the first 11 years or until the end of the loan term (whichever comes first) for loan amounts less than or equal to 90% of the home purchase price. Under current rules, annual MIP only applies for the first five years and until the loan balance is paid down to 78% of the original purchase price.
2) For all FHA loan terms with loan amounts greater than 90% of the purchase or value of the home, the annual MIP will apply until the end of the loan term or the first 30 years, whichever comes first.
To summarize, expect to have annual MIP for the life of your loan if you're planning to come in with less 10% down. If you put down 10% or more, you'll have it minimum for 11 years or the life of the loan, whichever comes first.
Though it's certainly a less favorable deal to be stuck with annual MIP for 11 years or the life of the loan, at least the premium will drop over time. Annual MIP is assessed on an annual basis as a percentage of your loan amount, so if you pay down your loan balance significantly over the coming years, your annual MIP payments will drop as well.
Another upcoming change is the removal of the annual MIP exemption for 15-year FHA loans with a loan-to-value of 78% or less. Beginning June 3, 2013, all 15-year fixed FHA loans will have annual MIP regardless of loan-to-value.
If you're going to be taking out an FHA mortgage in the coming weeks, it's super important that you have your lender order your case number before June 3, 2013. Don't worry about what the case number is, just make sure your lender gets it ordered so you can lock in the current mortgage insurance terms.
Though FHA loans are a great home financing option, the more lenient qualifying standards do come with some compromises. Borrowers who take out an FHA loan are required to pay two types of mortgage insurance: annual MIP (mortgage insurance premium), which is paid on an annual basis in 12 installments as part of your regular mortgage payment, and UFMIP (upfront mortgage insurance premium), which is paid once at loan closing.
Thanks to the real estate bust and high mortgage default rates, the Federal Housing Administration (FHA) has been running tight on cash. To help shore up its finances, FHA has been raising mortgage insurance rates on a regular basis over the past few years, and unfortunately, this year will be no different. Mortgage insurance for FHA loans is about to get more expensive yet again.
The following are some important changes that will apply to FHA case numbers ordered on or after June 3, 2013:
1) For all loan terms (15-year, 30-year, etc.), annual MIP will apply for the first 11 years or until the end of the loan term (whichever comes first) for loan amounts less than or equal to 90% of the home purchase price. Under current rules, annual MIP only applies for the first five years and until the loan balance is paid down to 78% of the original purchase price.
2) For all FHA loan terms with loan amounts greater than 90% of the purchase or value of the home, the annual MIP will apply until the end of the loan term or the first 30 years, whichever comes first.
To summarize, expect to have annual MIP for the life of your loan if you're planning to come in with less 10% down. If you put down 10% or more, you'll have it minimum for 11 years or the life of the loan, whichever comes first.
Though it's certainly a less favorable deal to be stuck with annual MIP for 11 years or the life of the loan, at least the premium will drop over time. Annual MIP is assessed on an annual basis as a percentage of your loan amount, so if you pay down your loan balance significantly over the coming years, your annual MIP payments will drop as well.
Another upcoming change is the removal of the annual MIP exemption for 15-year FHA loans with a loan-to-value of 78% or less. Beginning June 3, 2013, all 15-year fixed FHA loans will have annual MIP regardless of loan-to-value.
If you're going to be taking out an FHA mortgage in the coming weeks, it's super important that you have your lender order your case number before June 3, 2013. Don't worry about what the case number is, just make sure your lender gets it ordered so you can lock in the current mortgage insurance terms.
About the Author:
Shopping for an FHA loan? Find out how FHA mortgage insurance works and what it will cost you at DefinitionOfPMI.com.
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