FHA Mortgage insurance (up front and monthly) are set to increase April 1st 2012 to bolster the capital reserve fund and to “continue encouraging the return of private capital to the housing market” per Carol Galante, Acting FHA Commissioner. The bottom line is FHA loans will be more expensive and could make conventional options a better choice for borrowers who do not have a full 20% down payment when financing a home. Galante expressed the intent for “FHA to remain a valuable option for low- to moderate-income borrowers.” FHA does not make loans but instead insures loans that meet FHA guidelines. The increase in mortgage insurance is needed to rebuild the FHA fund that has taken a hit over the past few years. FHA guidelines are relatively lenient opening up the opportunity for home ownership to more borrowers who may not have the requisite 20% down payment or may have a less than ideal credit profile. So what the does the FHA’s new mortgage insurance rates mean to FHA mortgage applicants? Starting April 1, 2012, Upfront MIP for loans raises from 1.000% to 1.750% of the loan amount. Annual MIP fees change, too, climbing by 10 basis across the board, and by an additional 25 basis points for loans between $625,500 and $729,750. $729,750 is the largest FHA loan limit. It’s reserved for high-cost areas we see in metro areas of California. If you think you’ll want an FHA loan for your next mortgage, the best way to avoid the new FHA fees is to have your FHA Case Number assigned before the new FHA MI premiums go into effect April 1, 2012. All existing FHA mortgages will use the “old” MI rates. Those with existing FHA mortgages should look at the possibility of a streamline refinance and get a case assignment prior to April 1st 2012. A streamline refinance currently requires new mortgage insurance so taking advantage of current low rates would be important. Conventional mortgage insurance will now be more competitive and viable option if you have solid credit and at least 5% down payment. Click here for the full text of the FHA press release
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