FHA Mortgages: Payments are Going up

by Tom Tousignant

in Blog, Home Buying

FHA mortgage insurance premiums approved to triple FHA mortgages are very popular with first time home buyers in Charlotte and thorughout the Carolina’s because of the low fixed rates, low down payments, and easier qualifying.

Starting sometime later this year, the monthly cost to carry an FHA-insured mortgage is expected to rise.

In a near-unanimous vote, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers.

Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12.  The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent, among other details of the bill.

Despite the ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.

In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:

  • Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
  • Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
  • Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium

Because higher monthly insurance premiums are expected to pad the FHA coffers sufficiently, the FHA has said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.

On the same $200,000 mortgage, a move like that would reduces closing costs by $2,500.

The bill awaits companion legislation in Senate and final approval into law, but considering the House’s lopsided vote Thursday, it could happen rather quickly.  If you’re planning to buy or refinance a home using an FHA mortgage, you may find that waiting to take the next step could be a costly one, long-term.

From a home affordability standpoint, higher Up-Front Mortgage Insurance results in a lower payment, so it’s easier for most home buyers to qualify currently.  The new, higher monthly mortgage insurance will result in higher Debt to come ratios for buyers, and make houses less affordable.

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