2012 FHA Mortgage Insurance Premium Changes

The FHA is breaking out a new schedule for mortgage insurance premiums. The new rates will be higher for some borrowers — but lower for others.

First, a little background.

The FHA has been with us since the 1930s. It popularized the concept of long-term financing at a time when most home mortgages were just five years in length. The FHA also allows buyers to purchase with less down. This happens because the FHA is an insurance program: borrowers pay premiums, the premiums are held in reserve and then if a loan is foreclosed the lender is paid off from the money collected from the premiums.

The FHA has two types of premiums: There’s an up-front mortgage insurance premium (up-front MIP) paid at closing (or added to the loan amount) and an annual mortgage insurance premium (annual MIP). The annual MIP is paid out monthly and declines over time as the loan balance falls.

So far — and “so far” means more than 70 years — no taxpayer money has been used to fund claims against the FHA. However, because of the grossly negative “book of value” racked up by the FHA between 2000 and 2008 it may be that taxpayer money will be needed in the future to pay off lender claims.

New Mortgage Insurance Premiums

For 2012 the new MIP rates look like this for most FHA borrowers:

As of April 9th the up-front mortgage insurance premium for most FHA borrowers will increase to 1.75 percent from 1 percent.

Also as of April 9th, the annual MIP will increase to 1.25 percent, up from 1.15 percent.

Why did the annual FHA premium rise? Because Congress raised the annual MIP when it extended the payroll tax deduction for two months.

Big Mortgages

For several years the FHA loan limits have been as high as $729,750 for a single-family home in high-cost areas.

As of June 11, 2012 the annual mortgage insurance premium will increase by .25 percent to 1.50 percent for FHA loan amounts in excess of $625,500.

Refinancing Older FHA Loans

While most FHA insurance rates are going up there’s at least one opportunity to lower premiums.

If you have an FHA loan originated before May 31, 2009 you can refinance into a new FHA mortgage and enjoy a significantly smaller annual MIP. Qualified borrowers with qualified mortgages will have an up-front fee of just 0.01 percent. The annual MIP is just .55 percent.

For qualified FHA borrowers who refinance the lower annual insurance premium could mean joy and elation — in the form of savings of $1,000 or more for many borrowers.

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1 Comment on "2012 FHA Mortgage Insurance Premium Changes"

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  1. emilymutter says:

    The right choice When choosing between an FHA refinance and a conventional loan, borrowers need to evaluate the cost of the refinance versus the benefit use “Official Refinance” calculator to choose

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