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FHA mortgage insurance premiums shift in 2013

by admin
April 10th, 2013

FHA loan rates, while often slightly lower than conventional mortgage rates, are off-set by the fact that borrowers must pay both upfront and annual mortgage insurance on these loan products. Insurance premiums jumped again in April and additional changes to the program will take effect June 1, along with other new FHA requirements that are aimed at reducing the number of FHA loan defaults and increasing the funds available to reimburse lenders for those loans that do go into default.

FHA mortgage insurance

Upfront insurance premiums for both purchase mortgages and refinancing mortgages remain the same in 2013 at 1.75 percent, but new annual mortgage insurance premiums (MIP) on FHA 203b loans vary according to the loan-to-value and the loan term. For loans longer than 15 years with a loan-to-value under 95 percent, the annual MIP is 1.30 percent; for loans above 95.01 percent, MIP goes up to 1.35 percent. FHA loans of 15 years or less require 0.45 percent in MIP.

Another change instituted as of April 1, 2013, is that mortgage insurance premiums, which used to be cancelled once the borrowers had paid for five years and their loan-to-value had reached 78 percent, will now continue for the entire loan term for borrowers who have a loan-to-value of 90 percent or less when they first take out the loan. MIP payments must be made for at least 11 years by other borrowers.

FHA refinancing

In spite of the mortgage insurance that is part of FHA mortgage requirements, FHA loans were 20 percent of all closed loans in February 2013, according to Ellie Mae, a provider of mortgage data. FHA loans had dipped to 18 percent of all mortgage loans in January 2013, so it’s possible that the uptick in these loans in February represents a flurry of activity prior to the increase in mortgage insurance premiums.

For purchasers, FHA loans remain appealing because borrowers can make a down payment as low as 3.5 percent and can use gift funds from family members or friends for the entire down payment.

For refinancing homeowners, FHA guidelines can make refinancing easier for borrowers who might be unable to qualify for a conventional loan. For example, FHA guidelines allow:

  • Loan-to-value as high as 97.5 percent.
  • Credit scores as low as 620.
  • Debt-to-income ratio as high as 43 percent.

Keep in mind that individual lenders may have other guidelines for FHA and conventional loans, so borrowers should always consult a lender before making a decision on the type of loan that meets their needs.

Michele Lerner

Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time”, has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including The Washington Post, The Motley Fool, Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine and numerous Realtor associations.

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