09 Aug 10 FHA Premiums Rising
There is clearly a big difference in what consumers will pay annually for FHA loan premiums. However, one must also consider several additional matters when comparing the old premium schedule with the new one. Under the current plan the big money is due up front and that is usually when first-time buyers, are least likely to have extra money. That is when new home buyers are less likely to be able to afford a FHA loan made larger by the addition of the up-front mortgage insurance premiums. By reducing the up-front insurance cost HUD has made the FHA mortgage a lot more practical for many marginal borrowers.
Second, the insurance requirement might not last for seven years. The FHA allows borrowers to end their insurance payments after five years if the value of their loan is less than 78% of the property’s value. “For FHA home loans with terms more than 15 years,” says HUD, “the mortgage insurance premium will be terminated when the Loan to Value ratio reaches 78%, provided the borrower has paid the MIP for at least five years. If the Loan to Value hits 78% and the borrower has not paid MIP for at least five years then the borrower must continue to pay MIP until the five year requirement is met. ” FHA mortgage rates are so low it is hard to believe that first time homebuyers will not reconsider purchasing a home in 2010 or 2011.
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