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.

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FHA Loan Articles

News, updates, and explanations to keep you informed.

FHA Mortgage Insurance Increases

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 percent to 1.5 percent for FHA mortgages with "an original principal obligation of less than or equal to 95 percent 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 percent of the appraised value of the property" the annual premium is increased from 1.55 from the original .55 percent, 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.

This applies to most FHA mortgage loans with case numbers assigned on or after October 4th, 2010 except for Home Equity Conversion Mortgages (HECM).

There are some FHA home loans not affected by these changes, including Title I loans, HOPE for Homeowners, and the following FHA loan programs:

- Section 247 (Hawaiian Homelands)
- Section 248 (Indian reservations)
- Section 223(e) (declining neighborhoods)
- Section 238(c) (Military Impact areas in Georgia and New York)

The Department of Housing and Urban Development has more information:
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-28ml.pdf