FHA Monthly Mortgage Insurance Increase - Why You Should Buy Now

If you only qualify for an FHA loan, why is it better to buy in the next couple of weeks compared to after? Your buying power is better today than after April 1. AND, if you had to wait until after April 1, you better buy before June 1... Let me explain.

Today, you could get a 3.25% rate if you're an "average" buyer, but no guarantee. However, in my example, I'm going to use 3.25%.  I understand property taxes and home owner's insurance can fluctuate greatly across the city, the state, and other states. In my example, I'll be using a 2.4% tax base to get about in the middle of the Austin communities as rates can be anywhere from 1.8% up to 3.1%.  I'm also going to use $80 a month for home owner's insurance. I am NOT going to include HOA dues into my calculations.

If you buy a house for $200,000, your down payment would be the basic 3.5% down. Your Up-Front Mortgage Insurance, at a rate of 1.75%, would roll back into your financed amount.  You calculate things out with your 1.25% monthly Mortgage Insurance Premium (MIP), and you obtain a monthly mortgage of about $1539.

Take the same price and buy after April 1, you calculate the 1.35% monthly MIP and you're mortgage payment will be $1556. That's a difference of $17 a month. You're thinking, "Oh, that's not a big deal. I'll cut back on 3 Starbucks coffees a month..."

Here is where the bigger deal is. Between April 1 and June 1, the monthly payment is "only" higher for 5 years. After 5 years, as current FHA rules are, MIP drops off the loan and you no longer pay the monthly insurance for the loan. Or, you can drop it off if you show your lender you are at a 78% loan to value ratio by submitting a market analysis or appraisal.

After June 1, LIFETIME Monthly mortgage insurance goes into place. That means that for the lifetime of your FHA loan, you will ALWAYS pay mortgage insurance. If you put 20% down, you will pay mortgage insurance. If you have the loan for 20 years, you will be paying mortgage insurance. If you can show you've paid the loan down to 78% or 50%, you will still continue to pay mortgage insurance. If you refinance with another FHA loan, you will still pay mortgage insurance... You see the pattern? No matter what you do, if you have an FHA loan, you will pay mortgage insurance for the life of that loan. That $17 a month that equaled $1020 over 5 years just turned into $6120 over 30 years.

And even if you're thinking, "But I won't be in this house for 30 years, so what does it matter?" Just think about how you never know what might happen. I go on appointments all the time where people tell me they didn't expect to be in the house as long as they were. I also sell houses to people who tell me they're never going to move again, and they're selling in under 5 years. You just never know.

Let me give you a couple of more examples for different prices.  At $225,000, today's payment would be $1722, but after April 1, it will be $1740 an $18 a month increase.  At $250,000, today's payment would be $1904, but after April 1, it will be $1925 a $21 a month increase. The monthly increase goes up and up as you go higher in price.

What's even more is rates have been inchng up. What if rates are higher by just 0.25% once April 1 hits.  Let me do those examples again with a slightly higher interest rate, though 3.5% is still an excellent rate!!
At $200,000 sales price, payment would be $1583 - that's now a $44 a month difference.
At $225,000 sales price, payment would be $1771 - that's now a $49 a month difference.
At $250,000 sales price, payment would be $1959 - that's now a $55 a month difference.

See how the numbers work?? It's simple math. Rates go up, payments go up. Percentage of Mortgage Insurance goes up, payments go up. Lifetime Monthly Mortgage Insurance Premiums ensures more money out of pocket each month for the duration of you owning that home.

What will you give up for that extra $55 a month?  Your gym membership? Your wireless hotspot on your phone to work with your iPad? One nice dinner for the entire family each month? 10 Starbucks coffees a month?  Put the numbers in perspective for your life.

**Are You Packed Yet?**

Donna Harris, REALTOR®
RE/MAX Austin Skyline
www.DonnaHomes.com
Donna@DonnaHomes.com
austin-texas-homes-for-sale.com

Austin TX Real Estate

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Copyright© 2013 By Donna Harris, All Rights Reserved. You may re-blog with links back to this post.
* FHA Monthly Mortgage Insurance Increase - Why You Should Buy Now * was first published on donnahomesblog.com.