FHA mortgage insurance rates have just been reduced in an unexpected move that offers the housing market a much needed boost. This .5% across the board MIP reduction will help more home shoppers become homeowners in 2015 and also reduce costs for thousands of borrowers looking to refinance.

This one-time reduction is great for the real estate community, but not everyone is aware that FHA mortgage insurance (MI) rates were increased seven times since 2008. Rates has got so high that many housing professionals thought FHA went overboard, and that FHA mortgage insurance had become too expensive for middle-class applicants to afford. This was reflected by the big drop in FHA loan volume during the last few years. This reduction simply returns MI rates back down to levels from three years ago.  Here’s a 10 year history of FHA MI rates and fees:

Prior to July 2008, FHA Mortgage Insurance rates were stable for a long time.

Before 2008, FHA mortgage insurance premiums were the unchanged for many years. The financial crisis created a new budget shortfall for FHA’s bottom line, however, and set off a series of drastic rule changes and rate increases over the next few years.

  • Annual Mortgage Insurance – One rate for all FHA loans.
    • .50% annually for all mortgages
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1.5% for all mortgages

July 2008 – FHA Mortgage Insurance overhauled briefly to a credit-based system

In a bizarre turn of events, FHA mortgage insurance rates are briefly converted to a complex credit score based system.  This system was so problematic that it was terminated three months after it began.

Credit Based 30 Year FHA Mortgage Insurance Rates

Credit Based FHA Mortgage Insurance - 30 Year

Credit Based 15 Year FHA Mortgage Insurance Rates

Credit Based FHA Mortgage Insurance - 15 Year

October 2008 – Another overhaul

As problems with the credit-based system became apparent, FHA quickly transitioned into another risk-based structure for its mortgage insurance program.  The October ’08 revamp essentially created a simpler version of the LTV and term length structure that’s still used today.

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage of any amount, LTV > than 95%: 55% Annually
    • 30 year mortgage of any amount, LTV ≤ 95%: 50% Annually
    • 15 year mortgage of any amount, LTV > than 90%: 0.25% Annually
    • 15 year mortgage of any amount, LTV ≤ to 90%: None
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1.75% for Purchase and Non-Streamline Refinance
    • 1.5% for Streamline Refinance

Understanding Today’s FHA Mortgage Insurance Rates

April 2010 – Upfront Mortgage Insurance Premium (UFMIP) increased to 2.25%

With the mortgage insurance fund still losing money, FHA experimented with imposing large upfront premiums to increase revenue.

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage of any amount, LTV > than 95%: 55% Annually
    • 30 year mortgage of any amount, LTV ≤ 95%: 50% Annually
    • 15 year mortgage of any amount, LTV > than 90%: 0.25% Annually
    • 15 year mortgage of any amount, LTV ≤ to 90%: None
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 2.25% for all loans

October 2010 – MI rates increased .35% for most loans, Upfront Premium decreased to 1%

Facing negative feedback and reduced volume from the larger 2.25% upfront premium, FHA decided to try a more balanced approach. The upfront premium was lowered to 1% as the annual premiums were raised by .35% for most loans.

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage of any amount, LTV > than 95%: .90% Annually
    • 30 year mortgage of any amount, LTV ≤ 95%: .85% Annually
    • 15 year mortgage of any amount, LTV > than 90%: 0.25% Annually
    • 15 year mortgage of any amount, LTV ≤ to 90%: None
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1% for all loans

April 2011 – MI rates increased another .25%

Needing additional revenue to cover increasing default rates on older loans, FHA imposed an across-the-board mortgage insurance increase of .25% on all loans.

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage of any amount, LTV > than 95%: 1.15% Annually
    • 30 year mortgage of any amount, LTV ≤ 95%: 1.10% Annually
    • 15 year mortgage of any amount, LTV > than 90%: 0.50% Annually
    • 15 year mortgage of any amount, LTV ≤ to 90%: 0.25% Annually
    • 15 year mortgage of any amount, LTV ≤ 78%: None
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1% for all loans

April 2012 – MI rates increased another .10%, Upfront Premium increased to 1.75%

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage of any amount, LTV > than 95%: 1.25% Annually
    • 30 year mortgage of any amount, LTV ≤ 95%: 1.20% Annually
    • 15 year mortgage of any amount, LTV > than 90%: 0.60% Annually
    • 15 year mortgage of any amount, LTV ≤ to 90%: 0.35% Annually
    • 15 year mortgage of any amount, LTV ≤ 78%: None
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1.75% for all loans

June 2012 – MI rates increased another .25% on jumbo loans

FHA announced a big increase in the Upfront Mortgage Insurance Premium and another across-the-board raise to FHA MI rates.

  •  Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage less than $625,500, LTV > than 95%: 1.25% Annually
    • 30 year mortgage less than $625,500, LTV ≤ 95%: 1.20% Annually
    • 30 year jumbo mortgage more than $625,500, LTV > than 95%: 1.45% Annually
    • 30 year jumbo mortgage more than $625,500, LTV ≤ 95%: 1.40% Annually
    • 15 year jumbo mortgage more than $625,500, LTV > than 90%: 0.60% Annually
    • 15 year jumbo mortgage more than $625,500, LTV ≤ to 90%: 0.35% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV > than 90%: 0.85% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV ≤ 90%: 0.60% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV ≤ 78%: 0.35% Annually
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1.75% for all loans

April 2013 – MI rates increased another .10%

FHA announced another across-the-board .10 raise for mortgage insurance rates. After 6 consecutive increases, borrowers began to think twice about choosing FHA loans.

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage less than $625,500, LTV > than 95%: 1.35% Annually
    • 30 year mortgage less than $625,500, LTV ≤ 95%: 1.30% Annually
    • 30 year jumbo mortgage more than $625,500, LTV > than 95%: 1.55% Annually
    • 30 year jumbo mortgage more than $625,500, LTV ≤ 95%: 1.50% Annually
    • 15 year jumbo mortgage more than $625,500, LTV > than 90%: 0.70% Annually
    • 15 year jumbo mortgage more than $625,500, LTV ≤ to 90%: 0.45% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV > than 90%: 0.95% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV ≤ 90%: 0.70% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV ≤ 78%: 0.45% Annually
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1.75% on all loans

January 2015 – MI rates cut by .50%

President Obama announced through executive order FHA MI rates will be cut by 1/2 point for 30 year mortgages.  Mortgage insurance rates for 15 year loans remain unchanged. Current FHA borrowers whose original loans were originated after May 31, 2009 can now refinance into the new, lower mortgage insurance rates. FHA borrowers with loans originated before May 31, 2009 already have lower MI rates than current levels. HUD expects to see between 100,000 to 200,000 borrowers taking advantage of new FHA mortgage insurance rates this year.

  • Annual Mortgage Insurance – Based on term length and loan-to value factors.
    • 30 year mortgage less than $625,500, LTV > than 95%: .85% Annually
    • 30 year mortgage less than $625,500, LTV ≤ 95%: .8% Annually
    • 30 year jumbo mortgage more than $625,500, LTV > than 95%: 1.05% Annually
    • 30 year jumbo mortgage more than $625,500, LTV ≤ 95%: 1.0% Annually
    • 15 year jumbo mortgage more than $625,500, LTV > than 90%: 0.70% Annually
    • 15 year jumbo mortgage more than $625,500, LTV ≤ to 90%: 0.45% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV > than 90%: 0.95% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV ≤ 90%: 0.70% Annually
    • 15 year jumbo mortgage more than $625,500 with LTV ≤ 78%: 0.45% Annually
  • Upfront Mortgage Insurance Premium (UFMIP)
    • 1.75% on all loans

This latest mortgage insurance rate reduction places FHA loans back on a competitive footing with other programs.  Plus, interest rates have dropped to their lowest level in years.  This is the best opportunity in years to consider buying or refinancing a home with an FHA mortgage.

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