FHA has played a vital role in the housing market recovery, continuing to provide mortgages to consumers that may otherwise be unable to obtain a mortgage. Another important role that FHA stumbled on is bridging the gap between the 20% down conventional loans and the long gone subprime mortgages. In 2007 FHA accounted for $44 billion in purchase mortgages, and in 2008 that number skyrocketed to $143 billion. I’ll give you one guess when the subprime mortgage mess came to a head?
Along with FHA’s new-found fame, came more delinquencies. FHA must maintain a certain amount of reserves in their insurance fund, so with more delinquencies came more defaults, and more defaults equals more insurance claims. So over the last few years FHA has increased their fees, both Up Front Mortgage Insurance Premiums (UFMIP) and the Annual Mortgage Insurance Premiums (MIP).
Ohio residents have seen FHA fees increase a number of times over the years. Here is a brief review of these increases.
FHA Mortgage Insurance History
EFFECTIVE DATE DOWNPAYMENT UPFRONT MORTGAGE INSURANCE PREMIUM (UFMIP) ANNUAL MORTGAGE INSURANCE PREMIUM (MIP)
Prior to July 14, 2008 ANY 1.50% 0.50%
July 14, 2008 Less than or Equal to 5% 2.25% 0.55%
More than 5% 1.25% - 2.25% (dependent upon credit scores) 0.50% - 0.55% (dependent upon credit scores)
April 5, 2010 Less than or Equal to 5% 2.25% 0.55%
More than 5% 2.25% 0.50%
October 4, 2010 Less than or Equal to 5% 1% 0.90%
More than 5% 1% 0.85%
April 18, 2011 Less than or Equal to 5% 1% 1.15%
More than 5% 1% 1.10%
April 9, 2012 Less than or Equal to 5% 1.75% 1.25%
More than 5% 1.75% 1.20%
A homeowner purchasing a $100,000 property with 3.5% down with a 30 year fixed at 3.50% has seen their payment increase by more than $100 per month with the current level of fees.
Currently a homeowner with an FHA mortgage will pay that Annual Mortgage Insurance Premium (MIP), similar to monthly mortgage insurance, for a period not less than 5 years. This means that if you purchased a home in Cincinnati, OH with an FHA mortgage and put 20% down (yes, sometimes that makes sense), you could expect the mortgage insurance to fall off after 5 years (assuming the principal balance at the 5 year mark is 78% of the purchase price).
In its Annual Report to Congress, HUD (U.S. Department of Housing and Urban Development) made the following statements:
“beginning with new loans endorsed after the policy change becomes effective later in FY 2013, FHA will once again collect premiums on FHA loans for the entire period during which they are insured”
“Consistent with FHA’s continued efforts to balance its counter cyclical role in the nation’s mortgage market with its responsibility to manage the Fund, FHA will increase annual mortgage insurance premiums by an additional 10 basis points.”
“This premium increase –$13 per month for the average FHA borrower – which FHA will enact in 2013 will add significant revenue to the Fund and ensure that FHA does not take on additional market share, while at the same time being modest enough that it doesn’t impact borrower access to credit or threaten our emerging housing recovery.”
So it appears that we will see both an increase in the Annual Mortgage Insurance Premiums (MIP) and the ability for the Annual Mortgage Insurance Premiums (MIP) to be removed. The increase in MIP would increase a homeowners mortgage payment on a $100,000 mortgage by $8.33 per month. Or roughly $500 over 5 years.
Ohio homeowners or homebuyers that would like to explore your options for an FHA mortgage, whether an FHA Streamline Refinance, an FHA Cash-Out Refinance, or an FHA Purchase take a few minutes to complete the FREE OHIO FHA QUOTE form.