The Federal Housing Administration will charge borrowers higher mortgage insurance premiums on new FHA loans starting next week.
If you are planning on getting an FHA loan in coming days, make sure your lender gets a case number from the FHA before Monday to avoid the higher fee. Lenders normally can get the case number assigned to the loan once the borrower applies for the mortgage. But if they are overwhelmed with applications, they may not get to it in time, says Cameron Findlay, director at Discover Home Loans.
The annual fee on most FHA loans will increase by 0.1 percent April 1. While it may sound small, this is one of a series of mortgage insurance hikes the FHA has implemented over the years. The fee has nearly tripled since 2008.
“Every penny counts for a consumer taking out a $200,000 loan,” Findlay says.
A borrower with less than 5 percent down payment who gets a $200,000 FHA loan on or after April 1 will pay $225 per month in mortgage insurance premium, or MIP. The same borrower will pay $208 if the loan gets an FHA case number by the deadline.
The mortgage insurance premium is calculated as an annual percentage of the total mortgage balance and is added to the borrower’s monthly mortgage payments. The fee depends on the size and term of the loan and the down payment amount.
After the hike, here are the new annual percentages you lender will use to determine your FHA mortgage insurance payments on 30-year loans:
Loans of $625,500 or less
- With less than 5 percent down: 1.35 percent of the total loan balance.
- With 5 percent down or more: 1.3 percent of the total loan balance.
Loans greater than $625,500
- With less than 5 percent down: 1.5 percent of the total loan balance.
- With 5 percent down or more: 1.45 percent of the total loan balance
The hike is part of an ongoing effort by the FHA to shore up its insurance fund, and it’s the first of several other changes FHA borrowers should expect this year.
The next major change goes into effect in early June. That’s when the FHA will require borrowers who take out new FHA loans to pay for mortgage insurance for the life of the loan. Currently, the mortgage insurance charge is dropped once the loan is paid down to 78 percent of the original value of the house of after five years, whichever comes later.
If you are in the process of getting an FHA loan, ask your lender how much you will be charged for mortgage insurance.
“Ask them the simple question: ‘What’s the MIP that you have quoted me on?'” Findlay says. “They have to disclose that.”
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