Early in 2013, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) announced changes that would be made to the FHA mortgage insurance policy, beginning on April 1, 2013. Changes were made to both the mortgage insurance premium policy and the length of time those policies remain in effect.
In summary, these changes include a higher Mortgage Insurance Premium (MIP) for case numbers assigned on or after April 1, 2013 as well as a change that will require mortgage insurance to be paid for a longer period of time, and in some cases, for the life of certain FHA home loans. Some types of refinancing, however, such as certain single family streamline refinance transactions that are refinancing existing FHA loans that were endorsed on or before May 31, 2009, are excluded from the MIP increase. Please contact your loan officer or other mortgage professional for details of these changes or for any other questions you may have regarding mortgage loans.
MIP Rate Increase
According to the FHA official site, on most FHA loans the annual premium will increase by 10 basis points (0.10 percent), or $100 per year for each $100,000 in loan amount.
For Jumbo FHA loans ($625,500 or higher) with a term longer than 15 years, the increase will be 5 basis points (0.05 percent), or $50 per year for each $100,000 in loan amount. Jumbo loans with terms of 15 years or less will increase by 10 basis points (0.10 percent) or $100 per year for each $100,000 in loan amount.
The premium itself varies depending on the loan size, term, and loan-to-value (LTV) ratio. Please see the following example:
For a $500,000 30-year loan with an LTV ratio greater than 95 percent, the new premium will be 1.35 percent, or $6,750 per year, up from 1.25 percent, or $6,250 per year. On a monthly basis, the premium increase amounts to about $42.
These premium increases do not apply if a borrower refinances an existing FHA loan that was endorsed on or before May 31, 2009, into a new FHA loan under the streamline refinancing program.
FHA is not changing the one-time premium borrowers pay up front (UFMIP); it remains at 1.75 percent of the loan amount.
In addition, the FHA has eliminated the exemption from the annual MIP for loans with terms of 15 years or less and LTV ratios of less than or equal to 78 percent at origination. For case numbers assigned on or after June 3, 2013, the annual MIP rate for all loans with terms of 15 years or less and LTV ratios of less than or equal to 78 per cent will be 45 basis points (0.45 percent), or $450 per year for each $100,000 in loan amount.
MIP Payment Duration
FHA borrowers will have to continue paying annual premiums for a longer period of time – in most cases, for the life of their mortgage loan. According to the FHA, the new “life-of-the-loan” MIP requirement begins with FHA case numbers assigned on or after June 3, 2013. The following two paragraphs are excerpts from the HUD/FHA web site (www.hud.gov):
- For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP)) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.
- For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90 percent, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.
To learn more about the policy changes mentioned here, contact your loan officer or other mortgage professional, or the FHA by telephone at 1-800-CALL-FHA, or go to the HUD/FHA web site.