The Cost of FHA Financing is Going to Increase!
FHA has recently announced that "as part of ongoing efforts to encourage the return of private capital in the residential mortgage market and strengthen the Federal Housing Administration's (FHA) Mutual Mortgage Insurance Fund" a new premium structure will go into effect.
Beginning April 1st, 2012, FHA will increase its monthly mortgage insurance premium as well as the upfront mortgage insurance premium.
On June 1st, 2012, there will be an additional increase of the monthly mortgage insurance premium for the high balance areas.
Currently, the upfront mortgage insurance, the amount added to the loan amount, is 1.00%. As of April 1st the new upfront mortgage insurance will increase to 1.75%. As an example, on a loan amount of $400,000, the current 1.00% equates to $4,000. After the increase goes into effect the new amount based upon 1.75% equates to $7,000. This increase will essentially add an additional $13 to the monthly payment.
The current monthly mortgage insurance premium is 1.15%. On April 1st it will be increased to 1.25%. On a $400,000 loan amount the monthly premium will increase from $383 to $416, or $33 a month more. Add this to the $13 from the upfront increase it totals $46 extra the borrower will be paying for FHA financing on a $400,000 loan amount.
As they say on TV, "Wait, there's more!" Effective on June 1st, FHA has announced that loan amounts greater than $625,500 up to and including the maximum loan amount of $729,750, the monthly mortgage insurance premium will increase another .25% to 1.50%. The government feels these buyers can afford more.
As an example using a $700,000 loan, the current monthly premium is $670. Effective April 1st, it will increase to $729, an increase of $59. When the June 1st premium increase takes effect, the monthly premium for the $700,000 loan will increase to $875 which is $205 more from where it stands today.
If you have borrowers on the fence about purchasing a home, I highly suggest you share with them the cost of financing is about to go up and to take advantage of the terms currently available to them.