FHA's Loan Guidelines for 2012

Learn How Much FHA Mortgage Insurance Will Cost in 2012

Editor’s note: FHA Mortgage Insurance Premium Changes starting April 9, 2012 and June 11, 2012. There is good news and bad news regarding the FHA MIP (Mortgage Insurance Premium) rates depending on the type of loan you are taking:

1. Streamline Refinance Loan: The good news is that the mortgage insurance for FHA Streamline Refinance loans is decreasing starting June 11, 2012. The UFMIP (Up front MIP) rate decreases to 0.01%, instead of 1%. The annual MIP will be set at 55 bps instead of 115 bps, regardless of the loan amount. That means a savings of $50 per month for every $100,000.
2. Single Family Mortgage Loan: The bad news, which will affect new home purchasers and refinancers with a non-FHA loan, is that the rates, starting April 9 2012 are increasing. The UFMIP increases to 1.75% instead of 1%. The annual MIP will increase by 10 bps.(That means an additional $8.33 per month for every $100,000). The increase in the rates was a result of the Temporary Payroll Tax Cut Continuation Act of 2011 signed by President Obama on Dec. 23, 2011.

In late February 2012, the Federal Housing Administration (FHA) announced new, tougher home loan qualifications for borrowers. Highlights of the new qualifications are:

• Increase annual mortgage insurance premium The annual mortgage insurance premium (MIP) will rise by 0.10 of a percentage point for loans less than $625,500. As of April 1, annual MIP will cost 1.25% of the loan amount, up from 1.15%. For loans greater than $625,500, the premium will rise 0.35 of a percentage point to 1.5%. The MIP for loans $625,501 to 729,750 will be 1.45% if the down payment is 5% or more. The MIP for loans up to $729,750 will be 1.2% if the down payment is 5% or more. The annual MIP is paid monthly.
• Increase upfront mortgage premium The upfront mortgage premium is also increasing by 0.75 of a percentage point. The premium will be 1.75% of the loan amount. This can be included in a mortgage.

FHA officials said the increase in borrower fees would raise about $1.25 billion during the rest of 2012 and through September 2013. The FHA's cash reserves shrunk because of a rise in borrower defaults.

FHA Loans at a Glance

The FHA does not make loans, but insures mortgages that meet its guidelines. Potential borrowers with credit scores of 580 or more can put down as little as 3.5%. As a result, the number of mortgages backed by the FHA has grown and now accounts for 40% of all new purchase mortgages in 2010, up from 4.5% in 2005, according to the FHA. Here are the general FHA loan guidelines:

• The borrower must meet standard FHA credit qualifications.
• The borrower must have a valid social security number, lawful residency in the United States, and be of legal age to sign on a mortgage.
• The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
• Eligible properties are one-to-four unit structures.
• FHA mortgage programs do not typically have maximum income limits, however you must have sufficient income to qualify for mortgage payments and other debts.
• Verification of income, assets, liabilities, and credit history for all borrowers is required.

Most lenders have what are called "overlays" that add other requirements to the minimum FHA guidelines.

A potential drawback in the FHA loan program is the dollar-limit the FHA places on loans. These limits are set county by county. In the lowest-cost areas, the FHA will insure loans up to $271,050, though that number can rise to $625,500 in the costliest parts of, say, New York or California.

To learn the FHA loan limit for your area, go to the interactive FHA Mortgage Limits page, which shows FHA mortgage limits for all areas.