Yesterday, the new FHA Up Front Mortgage Insurance Premium amounts were announced and will be effective October 1, 2008. This makes for the 2nd change this year in the amount of money it costs a borrower up front to get into an FHA loan.
Back in June, we wrote about the UFMIP changing as of July 14. As a result of the new housing Bill passing into law in late July, the amount that a borrower will pay for UFMIP is going to change again. Effective October 1, 2008 the UFMIP calculations are going to be:
- For all FHA loans that are “full doc” refinance or purchases, the new UFMIP amount will be 1.75% of the loan amount.
- For all FHA Streamline refinances, the new UFMIP amount will be 1.5%.
- For all FHA Secure refinances, the new UFMIP amount will be 3%.
In addition to the UFMIP changes, there are also changes to the monthly mortgage insurance factors for FHA loans. Monthly mortgage insurance is calculated by taking the factor and multiplying it by the loan amount which will give you the total annual amount and then divide by 12.
- For loans with an LTV greater than 95% and terms longer than 15 years, the new factor will be .55%.
- For loans with an LTV less than 95% or below and terms longer than 15 years, the new factor will be .50%.
- For loans with an LTV greater than 90% and a 15 year term, the new factor will be .25%.
- For loans with an LTV at 90% or less and a 15 year term, there is no monthly mortgage insurance.
- For FHA Secure loans, the new factor is .55% for loans with an LTV over 95% and .50% for loans with an LTV less than 95%.
There has been a fairly technical debate as to whether “risk based premium pricing” has merit or not going on for years. I thought it was interesting that just as risk based premium pricing was implemented, it was “outlawed” and replaced with a simple system that doesn’t take into account a borrowers FICO score as the risk based premium pricing schedule did.
What does this mean in simple terms to the people who are wanting to get an FHA loan?
In short: if you have great credit and want to get an FHA loan, you are going to pay slightly more than you would under the risk based method. If you have poor credit and want to get an FHA loan, you are going to pay slightly less than you would under the risk based method.
And no matter what, regardless of credit score, everyone is going to pay slightly more when getting a full-doc FHA loan than they would have paid in the system prior to the July 14th implementation of the risk based premium pricing method.
While on the surface, that may not make any sense — the underlying math and logic behind the math is more complex — which I would be happy to discuss with you if you really want to know!
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So if a buyer puts down the 3.5% and pays the .55% factor will this factor go down to .5% once the LTV of the loan is less than 95% or does the factor stay constant for the 5 years the buyer is paying MIP?
Kristen,
It is my understanding that the .55% factor is paid until the loan is paid down to 78% of the original amortization schedule, not just until your MIP is gone.
Justin