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House hunters who want to buy a home with an FHA mortgage must pay a set of costs, including something known in the industry as the Up Front Mortgage Insurance Premium or UFMIP.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

What Does the FHA Reform Act Mean for New Borrowers?

June 25, 2010

House Resolution 5072, the FHA Reform Act, was passed by a sweeping margin in June. The 406 to 4 vote allows the FHA to change FHA mortgage insurance premiums to "increase the FHA's capital reserves" according to a press release by the FHA, but also benefits new FHA borrowers, too.

House hunters who want to buy a home with an FHA mortgage must pay a set of costs, including something known in the industry as the Up Front Mortgage Insurance Premium or UFMIP.

This insurance premium is calculated by multiplying the base loan amount by a percentage rate (2.25% at the time of this writing). That amount is due when the buyer and seller close the deal on the home.

For some FHA loan applicants, that up front payment requires some serious budgeting and preparation, but thanks to the FHA Reform Act, some of that up front payment can now be shifted to the annual mortgage insurance premium, giving FHA loan applicants more time to save and make room for the Mortgage Insurance Payment in their budgets.

That's good news for FHA borrowers affected by the change, but the issue isn't settled completely. The next stage of the process is for the bill to clear the Senate; Department of Housing and Urban Development Secretary Shaun Donovan seems optimistic that H.R. 5072 could clear the Senate hurdle soon, saying "We look forward to quick action by the Senate on this proposal to encourage responsible homeownership while further reducing risk to the American taxpayer."

At press time no updates were available as to when the Senate might take action on the FHA Reform Act.

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