Big Reduction in FHA Mortgage Insurance Rate

For the past seven years, I have stood back and watched FHA's mortgage insurance rates go up and up and up.  FHA has always charge a monthly mortgage insurance premium (their version of Private Mortgage Insurance aka PMI), and rightly they should.  That premium helps cover their cost of losses in foreclosures, so charging it is only right.

The amount they charge has gotten a bit painful for my buyers through the years though, and that has bothered me. It was only 0.5% per year before 2008, but then it went to 0.55% before leaping to 0.9% in 2010.

That wasn't the end of it though.  2011 saw another huge increase to 1.15%, followed by a hop to 1.25% in 2012 before landing at it's current straining rate of 1.35% per year in 2013.

This high rate worked for FHA when they were the only game in town and - after the credit crisis - they were for many buyers.  Fannie Mae just recently re-activated their 3% down conventional option, though (YEA FANNIE MAE!), and Freddie Mac's 3% down option will be back on the market later this year.  With these lower down payment options and more flexibility being offered by the PMI companies, FHA is starting to feel the heat.

Thankfully, they've done something about it.  Today they announced a HUGE reduction in the monthly mortgage insurance rates, dropping it from the current 1.35% to a much more bearable 0.85% per year.  For the person borrowing $125,000, this will equate to roughly a $50/month savings on their mortgage payment.

This reduction will take effect for all FHA case numbers assigned on or after January 26th.  To make themselves even more beloved by the general mortgage populace, FHA will allow existing case numbers to be cancelled and reissued with this lower rate if the case number was issued within 30 days of today's announcement (January 9th). 

Some of you might recall a blog I wrote a few years ago where I broke up with FHA (FHA, I'm Dumping You).  Well, maybe it's time to reconsider.  FHA has come a'courtin' again, and I like the smell of their flowers.  Keep it up FHA.  Their might be hope for you yet.

(To learn more straight from HUD, click here for Mortgagee Letter 2015-01).

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.