Mortgage Insurance Premiums

September 21, 2010

What are they and why should I even think about them?  According to Wikipedia (love Wikipedia) it is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan.  When someone is foreclosed on, that’s a default of a mortgage loan.  On an FHA loan, which is the type most used by our buyers, the buyer must pay a mortgage insurance premium at closing.  This premium is often split into upfront fees and monthly fees.  The upfront fees are part of closing costs and, for our buyers, are usually rolled into the mortgage amount.  The monthly fees make up a part of the monthly house payment which also includes the principal, mortgage interest and escrowed taxes.  Since increasing the mortgage amount and increasing monthly premiums would greatly affect the monthly mortgage payment a customer makes on a $100,000 mortgage, you can very quickly see why you would want to pay attention to this.  HUD issued a letter #2010-28 stating that it would decrease the upfront premium to 1% of the loan amount and increase the monthly premiums which will have a direct effect on the monthly payment.  On a $100,000 loan that would be about $22/month difference.  If you can get on contract before October 4, 2010 and get you loan in process, this will not affect you.
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