Effective April 18th 2011, the FHA will raise the annual mortgage insurance premiums by “25 basis points” (or one quarter of a percent of the total value of the loan) for borrowers on primary, 1-4 unit properties. This change will not affect Title 1 loans, the HECM loan, the HOPE loan, and existing FHA mortgages.
Upfront premiums will not be affected, and FHA will continue charging an upfront premium equal to the following percentages of the mortgage:
- Purchase Money Mortgages & Full-Credit Qualifying Refinances – 1%
- Streamline Refinances – 1%
- Home Equity Conversion Mortgages – 2%
With the new changes effective, on a $250,000 sales price, the buyer will end up paying about $50 more in their total monthly mortgage payment. And, when looking at qualifying buyers, this could lower their purchasing power by around $9,000. Meaning, they will only be able to afford a $241,000 home, instead of a $250,000 home.
FHA borrowers will be paying about twice as much for mortgage insurance on a 30-year loan than if they were paying for Private Mortgage Insurance on a non-FHA mortgage. By putting at least 5% down on a 30-year mortgage, borrowers will pay an annual insurance premium of 1.10% of the value of the loan. Any down payments smaller than 5% will end up paying about 1.15%.
The chart below illustrates how much more a mortgage payment will increase based on the new changes: