Changes to FHA financing now scheduled to take effect on October 4 will probably raise the monthly payments for those who use the popular FHA Financing option. My loan officer, Mona Campos from Keystone Financial Mortgage in Bethlehem, recently showed me how the numbers add up.
Currently all FHA borrowers pay a 2.25% up-front funding fee at the time of closing on their home purchase. Most buyers actually roll this amount into their loan as part of their closing costs, so they never really think about it. It is, however, raising their monthly payment. The good news is that FHA is actually going to lower the funding fee to 1%. On a typical $200,000 loan with 3.5% down (FHA minimum) and 4.5% interest, the lower funding fee reduce the cost of the loan each month by $12.65. So far, so good. Now you know there's a 'however' coming, don't you?
The monthly FHA loan payment also includes the monthly PMI. which is the fee FHA collects to insure itself against the borrower defaulting on the loan. This part of the FHA fees is going up. Currently .55% for loans with less than 5% down, this fee is increasing to .90%. How does this effect our monthly payment under this scenario? The monthly PMI goes from $91.68 to $150, an increase of $58.32.
So now we have a decrease of $12.65 because of our up-front PMI descrease and an increase of $58.32 in our monthly PMI for a new payment increase of $45.67. I know the numbers can be confusing but hopefully this will help you to understand how these changes can effect your purchasing power in the coming months. If you're thinking about using FHA financing for your home purchase just give us a call and we'll be glad to guide you through to your new home purchase.
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