FHA Mortgage Insurance Fee Hikes April and June 2012

HUD today announced that mortgage insurance for FHA loans will increase April 1 and June 1.

Characteristically, the announcement isn’t clear on the impact to consumer borrowers, so here’s a quick description.

If you’re getting a home loan with less than 20% down, it’ll have mortgage insurance (MI), and there are two kinds: private (or PMI) and FHA MI. The FHA loans have better rates and easier approvals than PMI loans.

Right now, FHA has two tiers of MI:

(1) Up front MI is 1% of loan amount. It can be added to closing costs, or you can finance it by adding it to the loan amount.

(2) Annual MI is 1.1% of loan amount if your down payment is 5% or more, or 1.15% of loan amount if your down payment is less than 5% (you can go as low as 3.5% down with FHA). These annual fees are paid monthly. The calculation is loan amount x MI rate / 12mo = monthly MI payment.

Effective with today’s announcement, the two tiers of FHA MI change as follows:

(1) Up front MI for loans up $729,750 (EFFECTIVE APRIL 1): will be 1.75% of loan amount

(2a) Annual MI for loans up to $729,750 (EFFECTIVE APRIL 1): will be 1.2% of loan amount if your down payment is 5% or more, or 1.25% of loan amount if your down payment is less than 5%.

(2b) Annual MI for loans $625,501 to 729,750 (EFFECTIVE JUNE 1): will be 1.45% of loan amount if your down payment is 5% or more, or 1.5% of loan amount if your down payment is less than 5%.

Note that FHA loans go up to $729,750 by county (look up your loan limits here), and the Fannie/Freddie (non-FHA) limits are only $625,500. This is why FHA is implementing higher annual MI fees for those higher tier loans as of June 1. FHA mortgage insurance for loans to $625,500 will remain at the level shown in 2a after June 1.

If you have an FHA loan you’ve been waiting to refinance, do it now.

If you’re a home shopper using FHA financing, you’ll need to be in contract before the effective dates above to have the current, lower mortgage insurance fees. If your shopping period will take longer, ask your lender to run new scenarios to see how these fee hikes change your pre-approval.