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Fixing FHA after the Fact


The big cut in a FHA mortgage insurance premiums announced last week by President Obama may do more to ignite boom in FHA refinancings than in encouraging first time buyers to take out an FHA purchase loan.

The annual MIP, which has been such a serious hurdle to first-time buyers that thousands have chosen to pay higher interest rates on a conventional loan than go with FHA, currently is 1.35% for borrowers with credit good enough to qualify for down payments lower than 5%.

The annual MIP was increased to 1.15% in April 2011, to 1.25% in April 2012, and to 1.35% in April 2013 (for borrowers with less than 5% down). By refinancing, borrowers who took out loans when MIP rates soared can trade in their old mortgage insurance policies for new ones, which President Obama said will save FHA borrowers $900 a year on a $200,000 mortgage.

For frosting on the cake, borrowers also should get a better interest rate, since interest rates have fallen below 4%.  The lower premiums will allow more borrowers to qualify for FHA-insured loans

HUD said the FHA premium reduction will benefit 800,000 borrowers annually including 100,000 to 200,000 refinancings.  FHA’s new premium prices are expected to take effect towards the end of the month.

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