The Federal Housing Administration (FHA) is raising its mortgage insurance premium (MIP) fees. Annual premiums, which are paid monthly, and upfront premiums, which are paid only once on the origination of the loan, will be revised to conform to the following guidelines:
- effective April 1, 2012, annual MIPs for loans under $625,500 will increase to 1.25% of the loan amount, up from 1.15%;
- effective June 1, 2012, annual MIPs for loans $625,500 and higher will increase to 1.5% of the loan amount, up from 1.15%; and
- effective April 1, 2012, upfront premiums will increase to 1.75% of the loan amount, up from 1%.
These fee revisions will apply to purchase-assist homebuyer financing and refinancing by homeowners, but will not apply retroactively to existing FHA-insured mortgages.
FHA insurance requirements for qualification are less stringent than Private Mortgage Insurance (PMI) requirements. The FHA accepts down payments as low as 3.5% of the purchase price and credit scores as low as 580. PMIs appeal to more established borrowers making larger down payments (though less than 20%) and with higher credit scores. Because it accommodates less-qualified borrowers, the FHA has proven a popular choice for those making less than a 20% down payment. 40% of all 2010 purchase-assist mortgages and 53% of all first-time homebuyers’ mortgages between October and December 2011 where insured by FHA.
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