(Ed. Note: We have known Jimmy for years. His home loan advice is accurate and important. That’s why we want you to know about FHA loan costs)
Denver Mortage Broker explains new FHA home loan charge.
By Jimmy Kinley, Senior Mortgage Advisor
Well, FHA is at it again. They are upping the Up Front Mortgage Insurance Premium (MIP) as well as the monthly premium mortgage insurance costs (PMI). They have already doubled these costs in the last year and a half and it seems there is no end to the increase for buyers without large down payments. They are just going to have to pay more!Currently Up Front Mortgage Insurance is 1% of the loan amount, it is going to 1.75% (This is the part that is financed on top of the loan after the down payment). The monthly mortgage insurance is 1.15% right now and it will go to 1.25%
Here is how a 200,000 mortgage plays out for a 200K buyer. Rate is 3.75 on a 30 year fixed.
| Current | As of April 1st | |||
| $ 200,000.00 | base loan amount | $ 200,000.00 | base loan amount | |
| $ 2,000.00 | upfront mip | $ 3,500.00 | upfront mip | |
| $ 202,000.00 | financed loan amount | $ 203,500.00 | financed loan amount | |
| $ 935.49 | principal and interest | $ 942.44 | principal and interest | |
| $ 191.67 | monthly mi | $ 208.33 | monthly mi | |
| $ 1,127.16 | mortgage expense | $ 1,150.77 | mortgage expense |
The UFMIP will jump from 1 percent to 1.75 percent of the loan amount. This increase isn’t that noticeable up front, but will be noticeable when clients go to sell down the road. They will simply owe more money. This increase applies regardless of the amortization term or Loan To Value ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012. This means the buyer would need to be under contract with a rate locked before the end of March.
Click on this link to review the Official FHA Press Release.
As I mentioned before these changes don’t seem that dramatic, BUT THEY ARE!! In the last 2 years FHA has already increased the monthly MI from a factor of .55% with a 3.5% down payment to 1.15% with the same down payment. Now it will be a factor of 1.25%. How does the factor work?
Loan size (200,000) multiplied by 1.25% (.0125) and then you divide the yearly amount by the 12 months in a year to get the monthly MI.
Loan size of $200,000 at 2010 .55% factor = $91.67 a month
Loan size of $200,000 at current 1.15% factor = $191.67 a month
Loan size of $200,000 after April 1st 2012 at 1.25% factor = $208.33 a month
This is a staggering increase of $1400 a year in monthly payments for the same 200K loan. If you work these numbers on a 350K loan it will make your head spin ($2450 a year). FHA requires you pay 5 years of monthly MI on a 30yr mortgage no matter how much you pay it down. That is 7K over 5 years on 200K and $12,250 on a 350K loan. You add the fact that the Up Front Mortgage Insurance Premium (MIP) is increasing by $1500 on 200K ($2625 on 350K) to this and we are moving some HUGE numbers. As you can see; that is real money and the longer you wait to buy, the more you could end up paying.
This doesn’t only affect FHA. Conventional mortgage insurance has seen a huge influx of business due to the last FHA increase. Guess what…Its simply supply and demand. They can charge more; so they do. Conventional MI rates have increased as well in the past few months. It is likely that we will see a slight increase in the monthly MI on conventional loans in the near future as well.
Feel free to call my cell with any questions.
Jimmy Kinley
Senior Mortgage Advisor
License# MB100020560, NMLS 287498
Direct/Cell: (720)261-1410
Office: (303)987-4989
Fax: (303)987-4968
Ironic that interest rates are down but MIP is up. If you don’t see it at one end you see at the other.
This seems to be an interesting topic most especially for those who are planning to have their own loan this year. Though the increase is not quite dramatic but still an increase is still an increase..
Securing an FHA loan is the most important piece of the home buying puzzle, but still there are a ton of variables that come into play that can affect the FHA. The best advice I can give to any homeowner is to do your research and take the time to find a well educated agent or Mortgage Advisor like Jimmy Kinley, securing a knowledgeable agent will help a lot, simply due to the fact that they’re time consuming and they’re able to assist more homeowners this way.