FHA Mortgage Insurance Changes — Risk Based Premiums for FHA Mortgage Insurance

Posted by Tammy McHood on June 14th, 2008

There are changes coming with FHA that will impact anyone who gets an FHA loan — starting on July 14, 2008. Beginning on this date, FHA is moving from the current mortgage insurance premium schedule to a new Risk-based premium schedule.

In short, if you have bad credit or are putting less money down on your house, you are going to pay more for the Up Front Mortgage Insurance Premium (UFMIP) and monthly mortgage insurance (MI).

Currently, when you take out an FHA loan amoritized over 30 years, HUD requires that you pay UFMIP equal to 1.5% of the loan amount and .5% of your monthly payment for mortgage insurance. All people who take out an FHA loan are required to pay the UFMIP, there is no getting around it.

Starting on July 14, depending on your FICO and LTV you may pay more (or less) based on the grid below:

Put that into a real life example. Say that you are considering buying a house in Maricopa and your total loan amount will be for 200,000. You have a 630 mid-FICO score and are planning on using the Nehemiah program and putting no money down.

Before the change, you would have paid 1.5% of your loan amount in UFMIP or 200,000 x 1.5% = $3,000. After the change, you will pay 1.75% (see grid) of your loan amount in UFMIP or 200,000 x 1.75% = $3,500.

And that is just your UFMIP.

In addition to that, your monthly mortgage insurance factor will go from .50 to .55 — which means that (depending on your interest rate) you will be paying more on a monthly basis as well.

Now — look what happens if your mid-FICO is 580. You will pay 200,000 x 2% or $4,000.

I think that this is a step in the right direction for the FHA program — people with lower FICOs who are putting less money down are higher risks and have higher rates of defaults.

If you are someone from the real estate or mortgage industry, here is the official Mortgagee Letter from HUD. If you are not from the industry, you may want to skip reading the Mortgagee letter — it is a little like reading every page of your tax forms!



June 14, 2008 | Filed Under FHA Related Information 

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One Response to “FHA Mortgage Insurance Changes — Risk Based Premiums for FHA Mortgage Insurance”

  1. What is “LPMI”? : Arizona Mortgage Team :: Arizona. Mortgage. Experts. on July 20th, 2008

    [...] pay an up-front mortgage insurance premium (UFMIP) regardless of the term of the loan. Recently, FHA changed the UFMIP % requirements in an attempt to match the risk of the loan with the UFMIP requirements. Higher risk = higher [...]

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