The FHA is becoming more and more important as a source of financing for Americans looking to purchase or refinance a home. The FHA insures mortgages against default and funds this insurance by charging borrowers a variety of mortgage insurance fees.
New rules that went into effect this month adjust the two types of mortgage insurance paid by consumers for loans insured by the FHA.
**The annual insurance premium (MMI) is paid monthly by the borrower. It is now 0.85% to 0.9% of the loan balance, depending on the down payment or equity owned. The previous amount was 0.5% to 0.55%.
**The one-time upfront insurance premium (MIP) that borrowers must pay has been changed to 1% of the loan balance from 2.25%.
The upfront premium is paid in a lump sum at closing or added to the loan balance, unlike the monthly premium, which is paid over the life of the loan in addition to the interest and principal.
Good News, Bad News: Under the new rules borrowers will save money at closing. But those monthly mortgage payments will be a little higher.
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