No, not an April Fools joke-Changes to FHA Mortgage Insurance

No, not an April Fools joke. Changes to FHA Mortgage Insurance are effective today, April 1, 2013

The changes to both the length and amount of the annual Mortgage Insurance were announced in Mortgagee Letter 2013-04.

There changes FHA Mortgage Insurance are being released in two stages.  

The first batch of changes will apply to all FHA case numbers issued beginning today, April 1, 2013.  From this point forward the annual MIP (amount that a borrower pays on a monthly basis) will increase by 5 to 10 basis points depending on the loan to value, term of the loan and base loan amount.

The table below shows both the current and new annual MIP rates.  All New Rates are effective for case numbers assigned on or after April 1, 2013

FHA Mortgage Insurace 2013

The second batch of changes will be effective for all loans with case number assignments on or after June 3, 2013 and it will affect the duration of the monthly mortgage insurance as well as the addition of monthly mortgage insurance for loan that were previously exempt from it.

FHA had always been considered a good alternative for those who could not qualify for conventional private mortgage insurance.  Despite the the fact that the monthly premiums have always been higher than PMI, the fact that eventually the monthly mortgage insurance would come off (previously monthly mortgage insurance (Annual MIP) was until 60 payments (5 years) had been made and the LTV reached 78%)  was a “light at the end of the tunnel” that  made FHA Mortgages a viable alternative.    Under the new guidelines, borrowers will be required to meet the minimum duration of 11 years or the full 30 year term depending on the length of the loan and the down payment amount.

FHA Mortgage Insurance Duration

In addition, the June 3, 2013 deadline will also bring changes to the monthly mortgage insurance for 15 year loans with loan to value equal to or less than 78%

FHA mortgage Insurance 15 yr loans

With the ever increasing cost of FHA Mortgage Insurance and the expanded guidelines of Conventional PMI, FHA is bound to loose market share.  

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