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Congress just passed a bill giving FHA the authority to alter its annual mortgage insurance premium.  This change goes into effect for all FHA case numbers ordered after September 7, 2010. 

All FHA loans currently have two types of mortgage insurance:

1. Upfront mortgage insurance – this is amount is currently 2.25% of the loan amount and added on to the loan at the time of closing.  This is being reduced to 1% of the loan amount.
2. Annual mortgage insurance – this is the monthly mortgage insurance payment made every month as part of an FHA mortgage payment.  It is currently calculated at .55% of the loan amount divided by 12 months.  This cost is being increased to .85-.90%

It is good the upfront mortgage insurance premium is being reduced, but in today’s cash flow conscious world, the borrower effect is a $200,000 loan will cost new FHA mortgage applicants an additional $57 per month.

This change will increase FHA’s congressionally mandated reserve levels at a time when they are perilously low