FHA Mortgage Insurance Changes – The Good and the Bad

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FHA is restless these days.  Especially as it pertains to mortgage insurance.  As of April 1, FHA’s monthly mortgage insurance is increasing from 1.15% to 1.25%.  For a $200,000 loan this will raise the monthly premium from $191.67 to $208.33.  Although this may seem a far cry from news prompting any of us to push the “panic” button bear in mind that in 2010 the monthly premium was $91.67 for this same example. 

As I’ve mentioned before, FHA has cleverly managed to make their program irrelevant to all but those consumers with credit scores below 680 or dependent entirely upon gift funds for their down payment.    Consumers that have high credit scores with sufficient funds for a 3% down payment will seek out conventional loans and will be better off by doing so.  For a guy that started his career working for FHA, it’s sad for me to see the program making changes that make it less appealing in the market.

At the same time, it was announced yesterday that FHA will lower the monthly mortgage insurance premium for consumers that obtained FHA loans prior to June of 2009 and are looking to refinance at today’s low rates.  For these consumers the mortgage insurance premium will be .55 – the same as it was in 2010. 

I applaud this decision – it makes perfect sense and will enable a large number of consumers that obtained FHA loans to improve their situation.

If you or anyone you know received an FHA loan prior to June of 2009, give me a call – we should talk.


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