FHA Loans About To Get More Expensive - One More Reason To Use A USDA Loan
Starting April 18, 2011 the factorial used to determine annual mortgage insurance premiums for a FHA loan will increase .25%. Based on today's annual mortgage insurance premium rate of .9%, assuming a 3.5% down payment on a 30 year mortgage, the .25% increase will result in a new rate of 1.15%.
Assuming a $200,000 loan amount the increase in mortgage insurance rates will cost the borrower an additional $41.66 per month. To determine the impact on a FHA borrowers monthly payment start by taking the monthly mortgage insurance premium factorial at .000958 (1.15%/12) and multiplying against the outstanding principal balance. Compare this using the old factorial of .00075 (.9%/12). This mortgage insurance change is calculated as follows:
- Current Premium: .009/12 * $200,000 = $150.00
- New FHA Premium: .0115/12 * $200,000 = $191.66
This increase in monthly mortgage insurance premiums should be one more reason why home buyers considering purchasing in a rural community should usa a USDA Loan since there is no monthly mortgage insurance premium on the USDA Loan Program. This means that the monthly payment on the USDA Loan is actually less than a comparable fixed rate FHA Loan even though the USDA Loan:
- Typically has a .25% higher interest rate than a FHA Loan
- Is a larger financed loan due to not requiring a down payment. A home purchased with a USDA Loan is financed at 100% Vs. 96.50% of the purchase price for FHA, which has a 3.5% down payment
- Has a higher upfront "Commitment Fee" of 3.5% of the purchase price Vs. FHA's 1% "Upfront Mortgage Insurance Premium". Both of these fees are financed into the loan further increasing the amount financed of a USDA loan Vs. a FHA loan
Despite all of these factors the monthly payment on a USDA Loan has always been less than a comparable fixed rate FHA Loan and starting April 18 the benefits of using USDA financing will get even greater.
To learn more about your USDA Loan Financing options using the USDA Rural Loan Program go to USDARuralLoan.com or email info@USDARuralLoan.com. I specialize in USDA Loans and Renovation Loan Financing. I am approved to lend nationwide and can be reached at (866) 747-2882.
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