Beginning April 1, 2012, the cost of up-front mortgage insurance premiums will increase by 75 basis points on new, 30-year, single-family FHA loans.
The Federal Housing Administration announced the change tuesday (See Document), as part of their plan to protect capital reserves.
The up-front premium, which is 1.75 percent of the loan amount, is expected to increase the agency’s revenue by $1 billion per year. Annual premiums on loans up to $625,000 will rise by 10 basis points, while loans up to $729,750 will increase by 35 basis points.
The increase is no surprise, since the FHA has failed to meet the capital ratio (ability to withstand losses) legal minimum of two percent, for three years in a row.
Some fear that because the FHA typically backs many first-time home buyers and low-income borrowers, the increases might make it financially difficult for them to enter the housing market. However, premiums can be amortized over the life of the loan, which may ease the burden of the extra cost.
One side note: FHA Streamlines, which allow current FHA loan holders to qualify for a lower-rate FHA loan, will not be affected – yet.
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