Mortgage insurance premiums for FHA loans will increase for the fifth straight year, commencing with loans registered after April 1, 2012.
This increase is deemed necessary by the FHA to cover projected future losses due to mortgage defaults. The FHA – Federal Housing Administration does not make mortgages, rather it insures mortgages for qualified lenders.
The term FHA Insured would be more appropriate to describe the relationship between the FHA and the lending institutions that underwrite such loans.
FHA mortgage insurance consists of two parts – an Upfront Mortgage Insurance Premium, also known as UFMIP and the Annual Mortgage Insurance Premium. UFMIP rates will rise from the current 1.0% of the loan amount to 1.75% of the loan amount.
The annual premium will be rise to 1.20% of the loan amount compared to the current 1.10%. Monthly mortgage insurance is determined by the formula: (Loan Size) * 1.20 / 12. This annual increase cited is for Loan To Value ratios LTV – the ratio of your down payment to the loan size – under 95% or less.
FHA loans are popular with buyers who do not have sufficient down payment funds to qualify for a conventional loan. A FHA loan down payments can be as little as 3.5%. This mortgage is also available to buyers with less than perfect credit. Lenders will consider a buyer with FICO credit scores of 640.
On average this upcoming increase will add an approximately $30 a month to the monthly cost of a a borrower’s monthly payment.
Wallingford Real Estate – Wallingford, PA 19086
