The Federal Housing Administration (FHA) just announced on Tuesday February 15th that they will be increasing the annual mortgage insurance premium that they charge on all new purchase or refinance transactions after April 18th, 2011. The increase will be .25% on all FHA forward mortgages.
On a 30 year FHA loan with a Loan to Value (LTV) ratio of 95% or greater the premium will be increasing from .90% to 1.15%. With LTV’s below 95% it will increase to 1.10%. On 15 year fixed loans with LTV’s greater than 95% the mortgage insurance premiums will increase to .50%. On a $300,000 loan that is approximately $62 more per month. To calculate the monthly mortgage insurance payment, take the base loan amount and multiply it by the annual mortgage insurance premium percentage and divide by 12.
Although, nationally this increase is not expected to have a large impact on borrowers, in San Diego and throughout California where loan amounts are typically higher, this could have a larger impact on first time buyers who are already close to their maximum qualifying ratios.
This will not affect you if you currently have an FHA loan, but if you or anyone you know were thinking of purchasing or refinancing with an FHA loan, now would be the time to pursue it before the changes take place.
This change was implemented to help strengthen FHA, which has been losing money over the past several years and is mandated by congress to have a certain amount of reserves. This is important since some estimates show that FHA loans represent nearly 50% of all loans being done today.
Even though FHA has slightly increased their rates, the FHA loan is still a good value for clients with little to put down. Rest assured that the FHA loan is still a very viable option worth considering.