Mortgage Insurance for FHA Home Loans can now be more expensive. The upfront premium was recently raised, but now the monthly cost will also likely rise. Mortgage Insurance is used to secure the banks, in this case FHA in instances of Foreclosure. Because their reserves are down from so many default loans, they need to raise more funds to meet their reserve limit.
Effective April 9, 2010 those upfront premiums went from 1.75 percent to 2.25 percent. However, the FHA was not able to raise the annual premium without the permission of Congress as it was already at the authorized ceiling. Under the law passed today the agency will be allowed to increase its annual premium to 1.50 percent of the unpaid balance of the loan. This shift will allow for the capital reserves to increase with less impact to the consumer because the annual MIP is paid over the life of the loan instead of at the time of closing.
