Hello Hampton Roads,

An FHA loan allows buyers who have good credit but who may not neccessarily have the 20% downpayment required for a conventional loan to purchase a home.  For this benefit, HUD charges an upfront MIP (mortgage insurance premium) that buyers are required to pay when they get an FHA loan. These funds are pooled in FHA's Mutual Mortgage Insurance Fund which is used to protect investors against default since HUD guarantees FHA loans and protects a percentage of the lender's investment.  Due the number of defaults, this Mortgage Insurance Fund is undercapitalized and the rules for the FHA MIP are changing to help shore up the fund.

As of Oct. 4, 2010 buyers will pay a smaller upfront mortgage insurance premium, but higher monthly premiums effectively paying more in the long run. Under the new rules, assuming a 30-year fixed rate FHA mortgage with a minimum of 5 percent down:

  • Upfront MIP drops to 1.000% of the amount borrowed from 2.250% (100 basis point decrease)
  • Annual MIP increases to 0.850% of the amount borrowed from 0.500%

For example, for a $100,000 mortgage,  the upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.

A great article to read more on this is Look What’s Happening to FHA Mortgage Insurance!
If you are considering buying a home in this market, if may benefit you to do so before the rules change.

Thanks for Reading,

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