FHA Mortgage Insurance Premiums to Increase on April 1

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FHA Mortgage Insurance Premiums to Increase on April 1

February 28, 2012

FHA-backed loans, which help make home ownership attainable for many Americans, will get pricier in about a month.

In order to boost their dwindling capital reserves, the Federal Housing Administration announced on Monday that they will adjust their premium structure for FHA-insured mortgage loans.

Starting on April 1st, the upfront insurance premiums will rise from 1 percent to 1.75 percent of the base loan amount. FHA’s annual mortgage premium will also increase, by 0.10 percent for loans under $625,000 and 0.35 percent for amounts above that.

The Wall Street Journal pointed out that, for a $300,000 loan, the new premium “works out to $5,250, up from $3,000, but because homebuyers are allowed to finance the upfront insurance premium into the balance of their mortgages, officials said the sticker shock from the higher fees would be relatively modest, provided that borrowers can qualify for a slightly larger loan.”

In a call with reporters, Acting FHA Commissioner Carole Galante said that the changes will increase the agency’s revenue by about $1 billion a year.

From the press release:

After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Galante. “These modest increases are one of several measures we are taking towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers.”

Last April, the FHA increased their annual premiums by a quarter of a percentage point for the same reason.