FHA requires mortgage insurance upfront and a payment in addition to a monthly loan payment. It is required on all FHA loans except on a 15-year mortgage that is less than 90% loan to value.

A new law affecting FHA loan mortgage insurance premiums may cause some initial confusion, but once the facts are clearly understood, FHA borrowers can adjust their budgets accordingly.

President Obama signed a bill in August of 2010 giving HUD additional flexibility when it comes to mortgage insurance premiums. Under the law, effective as of October 4 2010, HUD is allowed to raise the annual mortgage insurance premium for FHA loans from .50% to 1.5% for FHA mortgages with "an original principal obligation of less than or equal to 95% of the appraised value of the property" according to the Department of Housing and Urban Development. That increase, if implemented, would affect what HUD calls "the remaining insured principal balance"

For mortgages with "an original principal obligation that is greater than 95% of the appraised value of the property" the annual premium is increased from 1.55 from the original .55%, if implemented.

And that is the most important aspect of the new law--these increases have not been implemented by HUD. FHA borrowers will see an increase in annual mortgage insurance premiums, but not to their maximums.

According to the Department of Housing and Urban Development, "Although the law authorized HUD to go up to these amounts, HUD is not doing so at this time." (Emphasis ours).

Instead, FHA loans will see an increase in the annual premium and a corresponding decrease in the upfront mortgage insurance premium. In plain English, this means that while the amount the FHA borrower pays at the end of the year goes up, but the amount the borrower pays up front goes down.

HUD Raises Insurance Premiums on FHA Loans

Once again, FHA announced that they would be increasing the annual insurance premium on new FHA mortgages that they insure starting April 18th 2011. Premiums for new 30- and 15-year FHA-home loans will increase by one-quarter of a percentage point. The annual premiums, which are spread over monthly mortgage payments, will range from 0.25% to 1.15% of a loan amount, up from 0% to 0.9%. The rate you get depends on factors such as the loan amount and duration. Existing loans won't be affected.

Borrowers also pay a 1% upfront mortgage-insurance premium that can be rolled into the loan amount when they take out an FHA loan. That premium remains unchanged.

The premium increase is part of the FHA's efforts to bolster its capital reserves. By law, the FHA is required to have a 2% cushion, but it has dropped to 0.5%, Mr. Ryan says.

At the FHA Mortgage Loan Company, our team of licensed loan officers provides consultation for both refinance and home purchase loans that are insured by FHA. They will help to determine which loans meet your needs and which programs you are able to qualify for.