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FHA Annual Mortgage Insurance Premium to Rise


The Senate late last night unanimously approved legislation to grant the FHA authority to raise the annual mortgage insurance premium from 0.55 percent to 1.55 percent.

However, FHA officials only expect to raise the premium to 0.9 percent, while lowering the upfront mortgage insurance premium.

Earlier this year, the upfront mortgage insurance premium was increased from 1.75 percent to 2.25 percent.

The result would mean borrowers taking out a $170,000 loan at five percent would pay just $38 more each month.

At the same time, the FHA would stand to bring in an additional $3.6 billion annually to bolster its depleted reserves.

“Our legislative proposals provide FHA the ability to hold lenders accountable for the loans they underwrite,” said HUD Secretary Shaun Donovan, in prepared remarks.

“And, we have also proposed giving FHA the flexibility to respond to changes in the marketplace by granting additional authority to adjust the annual mortgage insurance premium and, in turn, reduce the upfront mortgage insurance premium paid by borrowers.”

While FHA loans may be more expensive going forward, the costs will be spread out over time, keeping upfront costs low, which is essentially why borrowers choose these types of loans.

A few weeks back, the FHA proposed a minimum credit score requirement and may soon require borrowers with Fico scores below 580 to bring in at least a 10 percent down payment.

Those with credit scores of 580 and above will still be eligible to bring in as little as 3.5 percent down, the FHA’s flagship loan program.

Over the last 18 months, the FHA has insured roughly 30 percent of home purchase mortgages and 20 percent of refinances in the housing market.

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