FHA (Federal Housing Administration) will again be revising its way of collecting
revenue to sustain its ability to provide American with affordable housing and
financing. The Senate has approved important changes affecting FHA financing. The
changes will increase the monthly cost of FHA mortgage insurance premium, while
reducing the upfront costs.

According to the release from HUD, the upfront MIP, which is currently 2.25% of the
loan amount, will decrease to 1.0%, while the monthly premiums will increase from
.55% to .85% for financed amounts of 95% or less of purchase price and .90% of
financed amounts more than 95% of purchase price.

Typically, I see homebuyers in Arizona who finance with an FHA loan put 3.5% down.
In this scenario the MIP would increase to .90% monthly. On a home costing
$150,000, with 3.5% down and financing your upfront MIP, you would have a loan
amount of $146,197 making your monthly MIP $109.64; about $42.00 more per month
than the current monthly premium, which is .55%.

The good news is the upfront PMI would decrease from 2.25% of the loan amount to
1.0% of the loan amount. Using the same $150,000 purchase price, you would be
financing $1810.00 less into the amount of the loan. The break even point would be
about 43 months. After that point, the additional monthly MIP becomes a real cost.

An adverse effect of the increase in monthly insurance premium is the amount
homebuyers qualify for will be reduced by the amount of the difference in monthly
payment. In real dollars, assuming taxes and insurance to be equal, you would qualify
for about $7000.00 less house for the same monthly payment.

The new changes are scheduled to go into effect September 7th, 2010.