Update 2-16-2011: To quote a famous US President..."Well, there you go again"...FHA will be raising the annual Mortgage Insurance Premium (MIP) by .25, resulting in another $21/month based on a $100,000 FHA loan. (Sources: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf and http://portal.hud.gov/hudportal/documents/huddoc?id=fromthedeskof021811.pdf)
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 (H.R.5981) passed 6-10-2010, the FHA will be allowed to increase its annual premium to 1.50 percent of the unpaid balance of the loan.
Per FHA Commissioner David Stevens' congressional testimony, for new borrowers, the FHA will lower its upfront premium (from 2.25% to 1.0%) simultaneously with the increase to the annual premium (from .55% to .90%). It was FHA's intention to implement that change effective on September 7, 2010 (but now has been delayed until 10-4-2010), FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years.
Example: Based on a $100,000 FHA loan, the new up front premium will be $1,000 (instead of $2,250) and the annual charge would probably be $900 (instead of $550).
The net overall difference is effectively an increase in taxes (to those people making less than $250,000 per year). Even though FHA plans to lower the upfront premium, the monthly MIP charge is going up over the minimm mandatory 5 years of payments - based on a $100,000 loan, it could mean more than $750 over 5 years. You may get a small break if they retain the MIP tax deductibility...
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