FHA does not make mortgage loans, they do, however, insure the banks against default. So, FHA is basically an Insurance Company. Each entity buying FHA loans is insured against the borrower falling into some consequence that keeps them from making their payments.
Because so many people have actually gone into foreclosure, FHA has changed the rates of the insurance (or PMI) that they charge on loans. This week, FHA announced their FHA PMI (or Mortgage Insurance Program) will see additional rate changes in April of 2012, and June of 2012.
(Just to be clear – The “industry” term for this default insurance for FHA is referred to as MIP – however, most of the people we talk to think of it as “PMI” and therefore, we refer to it as FHA PMI.)
Effective with today’s announcement, the two tiers of FHA PMI change as follows:
Loans Made on APRIL 1, 2012 the Upfront FHA PMI for loans up to $729,750: will be 1.75% of loan amount
Loans Made on APRIL 1, 2012 the Annual FHA PMI for loans up to $729,750: will be 1.2% of loan amount if your down payment is 5% or more, or 1.25% of loan amount if your down payment is less than 5%. (so take this amount and divide by 12 to compute your monthly payment).
Again, to be clear – with FHA you pay 2 kinds of Mortgage Insurance. The first one, is referred to as Upfront Mortgage Insurance, which is actually added to your loan amount. So, if you are borrowing $100,000 – the Upfront Insurance will be $1,750 (100K x 1.75%). FHA allows you to FINANCE this amount – so in this case, you would actually be borrowing $101,750.
In Addition to the Up Front Mortgage Insurance, FHA charges an “Annual” Premium. To calculate this premium, based upon our original loan that’s now $101,750 – you would multiply that amount by 1.25% (if you made less than a 5% downpayment), and then divide that by 12 to come up with your monthly payment for FHA PMI. ($101,750 x 1.25% = $1271.85 / Divide $1271.85 by 12 = $105.99 per month in FHA PMI)
Loans Made on JUNE 1, 2012 the Annual FHA PMI for loans $625,501 to 729,750: will be 1.45% of loan amount if your down payment is 5% or more, or 1.5% of loan amount if your down payment is less than 5%.
Note that FHA loans go up to $729,750 by county, and the Fannie/Freddie (non-FHA) limits are only $625,500. This is why FHA is implementing higher annual MI fees for those higher tier loans as of June 1.
Again, Just for Clarification Purposes: The Annual Rate for FHA mortgage insurance for loans up to $625,500 will remain at the April 1 level of 1.2% of loan amount if your down payment is 5% or more, or 1.25% of loan amount if your down payment is less than 5% after June 1. (No areas in North Carolina Qualify for these higher FHA maximum loan limits, however parts of Virginia might)
Looking for Basic FHA Underwriting Guidelines?
If you currently have a FHA mortgage loan – you should consider a FHA refinance AFTER June 11, 2012 – because the FHA PMI cost for THOSE loans is going to be CHEAPER.
We offer the FHA Streamline Refinance Program – and it’s important to realize that there are some differences here in NC, from the stated guidelines on the HUD / FHA website. Why is that? Because NC has unique Anti-Predatory Laws that require different documentation than other states. Remember, FHA is an INSURANCE Company. It is saying “we will buy mortgage loans that meet these guidelines, and we will charge this rate.” The STATE of NC has it’s own ideas regarding what documentation they require.
If you are considering a refinance, and want today’s best mortgage rates – call Steve and Eleanor Thorne, 919 649 5058 we work with a Community Bank that offers great rates! We want to help save you money!