FHA Mortgage Insurance Rates Will Be Going Up on All New Loans Assigned April 9, 2012 and After.
FHA Loans are loans insured by the Federal Housing Administration (FHA). These insured loans minimize the risk lenders face by allowing buyers a down payment less than 20% of the price of the home. FHA Loans offer features that are attractive to many home buyers such as:
- Low Down Payment – as low as 3.5% of the purchase price of the home
- Low Closing Costs – closing costs, mortgage insurance and other fees can be included in the loan
- Easier Credit Qualifications – those who don’t have the credit score or history to qualify for a conventional loan may qualify for FHA financing
Because FHA loans allow a down payment of less than 20% of the purchase price of the home, mortgage insurance is required for these loans. Mortgage insurance premiums on FHA loans are much less than premiums for private mortgage insurance and most of the premium can be added to the loan. For FHA loans, a portion of the Mortgage Insurance Premium (MIP) known as the Up Front Mortgage Insurance Premium (UFMIP) is added to the loan balance rather than being paid out-of-pocket at closing. Then, the remaining portion of the MIP due is added to the monthly payment.
While FHA mortgage insurance premiums will continue to be lower than premiums for private mortgage insurance, FHA mortgage insurance rates will be going up on all new loans assigned April 9, 2012 and after. The UFMIP rate, which is included in the loan, will change from 1.00% to 1.75% of the loan amount. The MIP rate will change from 1.15% to 1.25% of the loan amount. Here is an example of how these changes will impact a loan for $400,000*:
| New FHA Loan (After April 1, 2012) |
Old FHA Loan (March 31, 2012 or prior) |
||
| Purchase Price |
$400,000
|
$400,000
|
|
| Down Payment % |
3.5%
|
3.5%
|
|
| Down Payment Amount ($) |
$14,000
|
$14,000
|
|
| Interest Rate |
4.25%
|
4.25%
|
|
| Up Front Mortgage Insurance Rate |
1.750%
|
1.000%
|
|
| Mortgate Insurance Rate |
1.250%
|
1.150%
|
|
| Tax Rate |
1.000%
|
1.000% |
|
| Loan Amount |
$392,755
|
$389,860
|
|
| Payment 1 |
$1,932
|
$1,918
|
|
| MI Payment |
$409
|
$374
|
|
| Total Payment |
$2,341
|
$2,291
|
|
| Taxes Monthly |
$333
|
$333
|
|
| Insurance Monthly |
$100
|
$100
|
|
| Other (HOA Dues) |
$144
|
$144
|
|
| Total Monthly Payment |
$2,919
|
$2,869
|
In the example above, the monthly payment goes up $50 per month. These changes can be compared as having a net effect of raising the interest rate of the loan by .25%. To buy down the interest rate by .25% to get the payment more in line with the former FHA insurance rates would cost about $8,000 out-of-pocket.
If you are planning to purchase a home using FHA financing, save money by purchasing your new home before April 1, 2012 to meet the April 9, 2012 deadline for the change in mortgage insurance premium rates.
*This purchase scenario is used for demonstration purposes only and may not be available at any or all communities. This information is provided for general awareness only, and is not intended for the purpose of providing legal, accounting, tax advice or consulting of any kind.
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