Federal Housing Commissioner David Stevens announced last Thursday that Congress had approved new limits on FHA’s Mortgage Insurance Premiums (MIP).

The MIP is applied to FHA loans two ways: (1) an upfront premium (currently 2.25% of the base loan amount—the balance of sale price less down payment); and (2) a monthly premium (currently 0.55% of the monthly loan payment (Principal & Interest). All figures in this article are for loans with the minimum 3.5% down payment. Premiums for loans with 5% or more down payment are slightly less.

It’s a mixed message, but the end result is still that FHA borrowers will pay more per month for their loans.

The upfront premium will be reduced from 2.25% to 1%.

The monthly premium will rise from 0.55% to 0.9%.

Here is how a minimum-down-payment FHA loan is calculated, and how the new rates affect the bottom line.
1. Down payment is 3.5% of the sale price of the home.
2. The balance is the “base loan” amount. Both upfront & monthly MIP figures are calculated from the base loan.
3. The upfront MMIP is calculated & added to the base loan amount to get the “Loan Amount” (the amount that determines the Principal and Interest [PI] figure for the loan payment).
4. Then the monthly MIP premium is calculated and added to the PI (plus the amount for taxes & insurance ) to get the total loan payment (PITI + MIP).

Although the upfront MIP premium goes down September 7th (resulting in a lower “Loan Amount”, the total loan payment will be higher because of the higher monthly premium. For example, on a $250,000 sale price, with 3.5% down payment and a 5% loan, the total loan amount will be $54 higher after the new rates take effect. [To see how that is calculated, call me. I can send you the data table that I can't put in this note.]

The conclusion? If you are planning to buy a home with an FHA loan soon, it will save you hundreds of dollars a year to get a commitment for that loan before 9/1/10.

To get a commitment, you need a property address. Call me. I’ll help you get a property under contract quickly Call Greg at 303-903-7160