by Pat Zaby
June 14, 2010 8:26 AM
The FHA Reform Act passed the House on June 10, 2010 by 406 to 4 to allow FHA to raise the annual MIP premiums which directly affects payments. Earlier this year, FHA raised the up-front MIP by .5% and this additional increase will affect housing affordability.
The maximum annual MIP could be 1.5%, up .95% from its current rate of .55%. To have the same monthly payment, the approximate 1% increase in MIP would equal 10% in price. There is some belief that FHA may not initially raise the rates to the maximum allowable so that they don't stifle purchase activity. However, even a .5% increase is equal to a 5% change in price.
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Annual MIP Rate – current vs. increases
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.55%
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.90%
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1.5%
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Monthly MIP payment
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$77.40
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$126.66
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$211.09
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Additional payment
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49.26
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$133.69
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Total Payment – PITI
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$1,259.56
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$1,308.82
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$1,393.26
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Monthly Gross Income to qualify
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$4,343
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$4,510
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$4,803
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It looks fairly certain that this bill will pass the Senate and the annual MIP will go up. It will affect the house payments of anyone who purchases after it goes into effect. An informed real estate professional will encourage FHA buyers to move quickly while the MIP is lower and before the interest rates rise. Usually, the borrower will have the benefit of the lower MIP if a FHA case number is assigned to a transaction prior to the change becoming effective.