Attention home buyers who are using FHA for their mortgage financing. I learned yesterday in my Monday morning meeting in Murrieta, CA that FHA mortgages just became a little more expensive on a monthly basis. I know you’re asking, what does this mean. Plan and simple, if you were quoted a payment from a loan officer/mortgage consultant just a few days ago, you will want to revisit that payment because it will be higher today, considering rates are still the same.
FHA announced yesterday that the amount of money they are going to collect for Upfront Private Mortgage Insurance dropped from 2.25% to 1%. This upfront fee was almost always rolled into the loan amount and financed over the duration of the loan. All things considered equal, this will lower your overall loan amount because the amount financed will be less. Let’s look at some numbers: Let’s say you have a loan amount of $200,000. The Upfront Private Mortgage Insurance that will be rolled into this loan amount is only $2,000, but just a few days ago it would have been $4,500. If this was the only change your monthly payment would obviously be less since you have a smaller loan amount. The bad news, this wasn’t the only change.
FHA also announced that the monthly Private Mortgage Insurance (PMI) increased from .55% to .90%. In some rare cases the monthly Private Mortgage Insurance (PMI) can increase to 1.55%, this will be determined by an underwriter. This change will make your monthly payment higher. Let’s dive into some numbers: let’s use the same $200,000 loan amount from above. The monthly figure is calculated by taking the total loan amount (base loan amount + Upfront Private Mortgage Insurance) $202,000 and multiplying this by the monthly factor (.90%) = $1,818. Now divide that figure by 12 for the 12 months in the year = $151.50. This is the amount you will pay for Private Mortgage Insurance (PMI) per month.
I ran some figures and the above monthly PMI payment of $151.50 is $57.77 higher with the current changes. Is this difference something to be concerned about? I guess that will depend on your circumstances. If you were at the upper limits of the debt to income ratios, then this amount could have a negative impact. If your debt to income ratios are not pushing the upper limits, then you’re probably just fine. I wouldn’t let a monthly increase of $57.77 stop you from buying a home. After all, that translates into $1.93 per day. Kind of brings it into perspective when you look at it this way.