For most Chicago area home buyers, the cost of FHA financing is about to go up. For years FHA had a one price fits all policy. As long as you qualified for an FHA mortgage you would get the same terms, whether you had a large down payment or small, and no matter what your credit score was, the mortgage insurance was the same price for all. This policy changed a few months back when FHA adopted a risk based pricing model. Risk based pricing is the idea that those borrowers who are the best credit risks will pay the least, and borrowers who have a riskier credit profile will still be able to get financing, but they will have to pay a higher rate for their mortgage insurance. This short-lived policy is about to change again. As part of the recently passed Housing Bill, starting October 1^st, there will be a one year moratorium on FHA risk based pricing.

The details of this change have now been released, and instead of going back to the old rate schedule, FHA is increasing their mortgage insurance rates across the board. FHA breaks their mortgage insurance premiums into 2 parts. One, the up-front premium which is financed into the mortgage, and two, a monthly premium which is paid for at least the first 5 years of the loan. Here is the new schedule that will be in effect as of October 1^st.

Up-Front MIP –

1.75% – Purchases and Qualifying Refinances
1.5% – Streamlined Refinances
3.0% – FHA Secure (High Risk Delinquent Borrowers)

Monthly MIP – these premiums are divided by 12 and paid each month

0.55% – over 90% LTV
0.50% – less than or equal to 90% LTV

On 15 year loans with LTV > 90%, annual mortgage insurance will be .25%

On 15 year loans with LTV < 90%, annual mortgage insurance will not be required

What this means is that borrowers with the lowest credit scores and the higher loan to values (less down payment) will be getting a break once this policy starts. But those lower risk borrower’s who used to be conventional buyers, will pay a little more. Conventional loans are getting their own increases, so FHA still has an advantage, but the end result is financing is a little more expensive than it was before.

The new pricing goes into place on October 1^st. Some borrowers will save some money by financing (either through a purchase or a refinance) before then. We are a direct endorsement FHA banker, so we underwrite and fund the loans ourselves. If you need to close quick, we can do it.

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