By Jorge Pazmiño
HUD announced increases to the Annual Mortgage Insurance Premiums (MIP). Changes will be in effect for FHA Case Number assignments on or after April 1, 2013. FHA will require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan. In 2001, FHA cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance. However, FHA remains responsible for insuring 100 percent of the outstanding loan balance throughout the entire life of the loan, a term which often extends far beyond the cessation of these MIP payments.
FHA’s Office of Risk Management and Regulatory Affairs estimates that the MMI Fund has foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy. Therefore, FHA will once again collect premiums based upon the unpaid
principal balance for the entire period for which FHA is entitled. This will permit FHA to retain significant revenue that is currently being forfeited prematurely.
How does this affect future home buyers using FHA?
First, anything under 10% down payment will require mortgage insurance for the life of the loan. Second, from 10% to 22% down payment will increase from 5 years to 11 years of required mortgage insurance. Third and last, automatic cancellation will no longer be available
regardless of loan-to-value ratio.
Big changes for a lot of future home buyers, ask your lender about options other than FHA after the April 1st changes take place.
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