Monthly Payments on FHA mortgages will be increasing in April, 2011

For the third time in 12 months, The Department of Housing and Urban Development or more commonly known as HUD is changing its FHA mortgage program. This time, the mortgage insurance premium is going up. This means that the monthly payment to Kansas City home buyers will increase. Let me go into more detail.

Effective for all FHA case numbers assigned on, or after, April 18, 2011, annual mortgage insurance premiums (MIP) will increase 25 basis points. That means the monthly payment will increase.

The change will add $250 to an FHA-insured homeowner’s annual loan costs per $100,000 borrowed, and applies to all borrower’s Kansas City equally. Borrowers who have applied for a Kansas City mortgage prior to the April 18th deadline are unaffected by the new changes.

Here is why the FHA mortgage premiums are increasing . . .

As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. According to its own records, the FHA’s percentage of purchase money business nationwide expanded from 4 percent in 2006 to 19 percent in 2010.

Rapid growth like this has strained the FHA’s capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will “significantly strengthen” its reserves. By law, the FHA must maintain a certain minimum level of reserves.

FHA mortgage insurance varies by loan term, and by loan-to-value and, beginning April 18, 2011, the new insurance premiums are as follows:

• 15-year loan term, loan-to-value > 90% : 0.50% per year
• 15-year loan term, loan-to-value <= 90% : 0.25% per year
• 30-year loan term, loan-to-value > 95% : 1.15% per year
• 30-year loan term, loan-to-value <= 95% : 1.10% per year

To calculate your monthly mortgage insurance premium, multiply your starting loan size by your insurance premium, and divide by 12.

There is no change planned to the 1 percent upfront mortgage insurance premium charged by the FHA.

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Blog post written by the Dowell Taggart Team of RE/MAX Best Associates

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