FHA Mortgage Insurance Increases April 1
When buyers are approved for an FHA home loan, they are required to carry mortgage insurance. That includes both a monthly Mortgage Insurance Premium (MIP) and an Up Front Mortgage Insurance Payment (UFMIP). The Upfront Mortgage Insurance Premium payments go into an escrow account set up by the U.S. Treasury Department and the funds are used to protect the government in case the borrower defaults on the FHA loan.
The Department of Housing and Urban Development (HUD) issued a press release to announce that FHA mortgage insurance will increase. Why? In 2006, FHA insured 2% of all purchase-money mortgages. In 2011, that figure jumped to 18%. Unfortunately, as FHA has insured more loans, it’s number of loans in default have climbed too, forcing them to boost its reserves.
So in a nutshell….the upfront MIP for FHA loans will increase from 1% to 1.75%. The monthly MIP will increase from 1.1% to 1.2%. All that is required is that the contract is submitted to the lender BEFORE April 1st in order to avoid the increase.
Here are excerpts from the HUD site:
FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent.
The Temporary Payroll Tax Cut Continuation Act of 2011 requires FHA to increase the annual MIP it collects by 0.10 percent. This change is effective for case numbers assigned on or after April 1, 2012. FHA is also exercising its statutory authority to add an additional 0.25 percent to mortgages exceeding $625,500. This change is effective for case numbers assigned on or after June 1, 2012.
The UFMIP will be increased from 1 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012.
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