FHA has announced major upcoming changes to their Mortgage Insurance premiums.
Currently FHA charges an Upfront Mortgage Insurance Premium of 2.25% of the base loan amount which gets financed in. Also FHA charges Monthly Mortgage Insurance with an annual cost of .55% on downpayments less than 5% and .5% on downpayments of 5% or more. The large Upfront Premium has given many buyers heart-burn given just how expensive it is. However, because interest rates have been so low, the overall effect on actual mortgage payments has been minimal. This is all changing.
Effective with all FHA Case numbers issued on/after 10/4/2010, the FHA Upfront Mortgage Insurance Premium will be reduced to 1% of the base loan amount. Sounds great you say? Not so fast - this is the Government we're talking about. FHA is also INCREASING the Monthly Mortgage Insurance premium cost from .55% to .90% on an annual basis (.5% to .85% for downpayments of 5% or more). This monthly increase is more damaging to the monthly mortgage payment than the reduction in the Upfront Premium.
The result is that on a sales price of $300,000, buyers would experience an overall payment increase of $66/month under the new Mortgage Insurance guidelines; on a $400,000 sales price buyers would see an increase of $88 per month.
The silver lining in this is that for those borrowers that are planning to sell their home 2-3 years after purchasing would come out ahead due to the lower upfront premium; however, for the majority of borrowers, these new MI premiums makes FHA financing more expensive in the long run.
Any purchasers that do get their FHA Case Number pulled on a property before 10/4 will be grandfathered in under the old premium costs - which works well with New Construction (as the FHA goes by the date the case number is pulled; not by the closing date). Keep in mind that FHA case numbers are tied to specific property addresses so unless a purchaser has a property under contract we cannot pull a FHA case number.
Comments(1)