New FHA Mortgage Insurance Rates Go Into Effect October 4th

FHA’s new mortgage insurance premium structure went into effect with new FHA loan applications made October 4th and beyond. The new structure is designed to further shore up FHA’s finances while still providing flexible mortgage financing for homeowners in Texas and throughout the country.

Under the revised structure, Up-Front Mortgage Insurance premiums will fall from 2.25% of the loan amount to 1.00%. Like a homeowner’s insurance premium, this fee is paid up-front at loan closing. This premium is typically added to the borrower’s loan amount, so effectively financed into the loan. While up-front premiums have dropped, annual premiums have increased. For borrowers putting less than 5% down, the annual premium jumps from .55% of the loan amount to .90%. For borrowers with larger down payments, the premium increased from .50% to .85%. Annual mortgage insurance premiums are paid as a portion of the borrower’s monthly mortgage payment and thus a higher premium means a higher mortgage payment for borrowers taking out loans today.

Despite the recent changes, FHA loans remain among the most attractive loan options for borrowers with limited down payment funds and good, but not great, credit scores. Borrowers can still get an FHA loan with only a 3.5% down payment and credit scores as low as 620 to 640. Conventional financing requires at least 5% down and credit scores in the high 600′s. In addition, mortgage rates have recently hit all-time lows accoding to the Freddie Mac Primary Mortgage Market Survey thereby muting some of the negative effect of mortgage insurance premium increases.