Effective April 5^th, 2010, for new 30 year FHA loans, FHA (Federal Housing Administration), will be raising their upfront mortgage insurance premium(UFMIP) from 1.75% where it currently stands, to 2.25%. What this increase means for FHA borrowers, is that on every $100k borrowed, the UFMIP fee will add an additional $500 in costs which will be traditionally financed into the loan. FHA is not increasing the monthly mortgage insurance, just the upfront mortgage insurance.

FHA mortgage insurance that is still very affordable and is one of the best mortgage program available. The added upfront premium will only add $4.27 to a $160,000 home that is financed with a FHA loan with a minimum of 3.5% down and an 30 year fixed interest rate of 5%.  The 4.27 monthly is not much of an increase monthly and should not affect the buyers qualifying for a FHA loan.  These increases apply to FHA refinance transactions also.  FHA has different mortgage insurance requirements for different loan programs and terms. 

FHA is increasing the UFMIP to off-set larger losses that it is taking right now.  As part of HUD (Housing and Urban Development) FHA has been a very popular loan program for homeowners lately. FHA loans only require a minimum of 3.5% for a down payment and have a minimum credit score of 580 (most lenders require 620 and above).  FHA has a 85% loan to value cash out refinance loans available too.  Since most conventional loans do not offer these types of loan products FHA has been the place for most of these loans that are not going with conventional financing.  When a loan program is the only program that offers something, it is in a position to take larger losses because all the higher risk loans are going there. The mortgage insurance is insurance that protect the lender if the borrower defaults on their mortgage.  FHA is one of the most flexible loan programs when it comes to working with homeowners who are having problems making their mortgage payments.  FHA has many solutions for problems that homeowners run into when buying or refinacing their homes.