On April 1, 2012, FHA mortgage insurance premiums (both the upfront and monthly Premiums) will increase to replenish the FHA depleted accounts.
Although FHA mortgage interest rates continue to remain at all-time lows, FHA mortgage fees are increasing, making the cost of buying a home or refinancing a home more expensive. The consecutive increase in FHA mortgage insurance premiums may limit a home buyers “buying power” but protects the nations primary “low cost” mortgage program for homebuyers.
There was a great article in the Washington Post explaining the current financial situation of FHA if you are interested in learning more – FHA Bailout
Currently, a homebuyer can qualify for a FHA mortgage in Tennessee with a 640 credit scoreas low as 640 , 3.5% down payment, and no money/assets in reserves (You can even use gift funds for your down payment).
How Does The New FHA Mortgage Insurance Affect the Homebuyer?
FHA covers the payment “risks” by charging an upfront mortgage insurance premium fee in addition to a monthly mortgage insurance premium.
Currently, homebuyers pay an upfront mortgage insurance amount of 1% (of the loan amount) and a monthly premium of 1.15%.
Under the new FHA increase in mortgage insurance, home buyers will pay an upfront mortgage insurance fee of 1.75% and a monthly fee of 1.25%
A comparison – Let’s look at a $200,000 mortgage
- Current FHA Upfront Mortgage Insurance Premium: $1,930
- New FHA Upfront Mortgage Insurance Premium: $3,377
- Current FHA Monthly Mortgage Insurance Premium: $187/month
- New FHA Monthly Mortgage Insurance Premium: $205/month
AlternativesTo The New FHA Mortgage Insurance
If your credit score is over 680, then you may be eligible for a conventional Fannie Mae mortgage which requires 5% down payment. Considering the $200,000 home purchase, you could save approximately $63/month and eliminate the upfront mortgage insurance premium.
If you are a first-time homebuyer, I would also recommend looking into the Tennessee USDA Home Loan Program. This loan program offers a zero down option with a low monthly mortgage insurance premium.
Please feel free to contact me today to discuss your opitions for purchasing your new home.