Checking The Pulse Of The Kansas City Real Estate Market

Back in April up-front FHA mortgage insurance premiums were raised from 1.75% to 2.25% of the loan amount. This was done in an effort to replenish the FHA reserve funds and keep the program afloat. Considering that more than half of loans being done today are FHA loans, I can’t think of anything more important right now than making sure FHA doesn’t cease to exist. Unfortunately the increase to up-front insurance premiums hasn’t gotten FHA completely healthy and now the powers that be are implementing a new plan.

Beginning October of this year, new FHA changes will include lowering the up front mortgage insurance premiums all the way down to 1% and then raising the annual premiums paid by FHA borrowers significantly. The new higher annual premiums will follow the following guideline: .90 basis points on loans with 5% or less down payments and .85 basis points for loans with more than 5% down payments. These changes will not have any affect on FHA loans already in progress.

Under the current structure, a $100,000 FHA loan would cost the borrower $2,250 in an up front mortgage insurance premium and then around $550 a year in yearly premiums. Under the new structure going into effect in October, the same borrower would pay $1,000 in an up front mortgage insurance premium and then around $900 in annual premium. If you analyze this for a short while, you’ll see that at some point around year 2 of the loan, you’ll be at a break even point either way. But after year two, you’ll be paying about $350 more per year (for every $100,000 amount borrowed)  thereafter.

Posted by Jason A. Brown