Cost of Mortgage Insurance on FHA loans going up?
Q: Is it true that the cost of Mortgage Insurance Premiums on FHA loans is going up?
A: The federal government has passed a law that allows the US Department of Housing and Urban Development (HUD) to make adjustments in the Mortgage Insurance Premium (MIP) on FHA loans. The upfront cost of MIP will actually be going down from 2.25% to one percent of the loan amount, which would mean a savings of $1,250 in closing costs on a $100,000 loan. However, the MIP paid as part of your monthly payment will nearly triple in most cases on a 30-year mortgage. This translates into an additional $30 per month on a $100,000 loan, or almost $11,000 in MIP payments if it remains on the loan for the full 30-year term. Even if your MIP drops off after just five years (normally the earliest MIP can be removed), you’re still looking at extra monthly MIP of $1,800 on a $100,000 loan once the changes go into effect.
These new MIP rules become effective for any FHA loan whose case number is assigned on or after October 4, 2010. That means that if you want to get an FHA loan under the current MIP rules, you will need to have an executed purchase offer in place and your lender must order the FHA case number before October 4.